Analysts have found a new drinking buddy in Constellation Brands (STZ) after Wednesday's selloff made the stock more attractive to slide up to.
Shares of the Victor, NY-based beverage behemoth are rebounding after a crushing 12.5% drop on Wednesday as many see the rewards outweighing the risks in the stock at its current price.
"Upgrade to Buy on compelling risk/reward post a sizable selloff," Goldman Sachs analyst Judy Hong said. "While near-term EPS for STZ could be further impacted by Canopy Growth Corporation's (CGC) net loss (consensus points to a net loss of ~$7 million for their next fiscal year), we note there is no impact to STZ's cash flow and the current stock price is not assigning much value to the Canopy investment, in our view, based on current valuation."
Hong's price target currently sits at $211 per share with Canopy and $195 per share even without the addition of the company's much publicized splash in cannabis. The target represents a nearly 40% upside for investors at the stock's current depressed level, which is far from its peer group.
Even formerly bearish analysts are changing their tune as the risks appear to be fully baked in at this point.
"We are upgrading STZ to "Neutral" because we think the risk/reward is more balanced now with the shares baking in the reality of the reduced forward earnings power and the high degree of risk associated with the Canopy Growth investment," Guggenheim analyst Laurent Grandet wrote.
He added that the risks posed by his analysis have not changed but the downside has essentially been realized after such a steep slide.
"Fundamentally, our thesis remains unchanged given the exceptional growth of the beer portfolio is decelerating even faster than we initially expected, the highly speculative investment in Canopy makes the stock significantly riskier to own, and it is structurally difficult to grow longer-term with the key Mexican import brands contractually limited to only the U.S.," Grandet warned. "However, we now see these risks as baked into the current valuation."
While Grandet removed his price target on the stock - a "Sell" rating - last levied in December, he held a price target of $180 in December. The previous target suggests that even his bearish take was not expectant of Wednesday's significant drop and the downside may have been realized at this point.
The FactSet consensus remains a "Buy" for the battered beer stock, with a price target consensus of $209 per share, suggesting significant upside for buyers on weakness.