Constellation Brands (NYSE: STZ) is facing pressure on its beer sales from President Donald Trump's policies, coupled with what has already been a slower environment for its wine and spirits brands. Given these factors, let's break down why it's hard to be overly bullish on Constellation's performance over the next three years.
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According to Reuters, U.S. beer consumption fell to its lowest level in 40 years in 2024. That's a tough signal for the market. And Constellation CEO Bill Newlands warned that President Trump's tariffs and immigration policies are leading to weaker beer sales for the company, as Constellation is heavily reliant on Hispanic buyers for its brands of Corona and Modelo, which are being impacted by Trump's policies.
Regarding the Trump front, I think it's incredibly difficult to say for sure what is and isn't going to happen over the next four years. He seems to be changing plans weekly, and what is tariff'd today, might not be tariff'd tomorrow, and vice versa. The larger concern is the trend in beer consumption. If younger generations stray away from the traditions of the past when it comes to drinking, the industry as a whole faces a fairly substantial challenge.
From an earnings perspective, the company is a bit inconsistent on an annual basis. Constellation brands flips back and forth rather frequently in terms of annual earnings. Out of the last six years, four have had negative earnings. For fiscal 2025, Constellation Brands finished the year with a loss of $81.4 million. When you consider that you can buy into companies like Microsoft (NASDAQ: MSFT) and have much more consistent earnings, it makes a lot less sense to be invested in a tougher industry like beer, wine and spirits.
As noted by Marketwatch, fiscal 2026 expectations are down. Constellation Brands predicted adjusted earnings of $12.60 to $12.90. That would mark a decline from fiscal 2025. Organic net sales aren't much better, with an expected decline of 2% to the downside, or an estimate of a 1% gain to the upside. That's pretty slow growth, if it is even achieved.
Over the last five years, this has not been a stock that outperforms the market. Shares have gained 12.2% vs. an S&P 500 return of 83% (at the time of writing). While beer is the main source of income for this business, wine and spirits still matter, and they've been a headache for a while now. Management noted that they're going to attempt to spin off some of the weaker performing wine and spirits brands, but the question here is how do they offset that fallout in revenue, when management is expressing concerns over its top beer brands?
Objectively, this just does not look like a business that stands to thrive over the next three years. In that timeline, President Trump remains President; meaning tariffs remain a potential factor. The issues on the wine and spirits front remain present, and one has to wonder where the replacement revenue will come from in the event that segment declines. To top it all off, the weaker drinking trends of younger people remain prevalent. My prediction is that the stock underperforms over the next three years. Constellation simply does not seem positioned to be a top name for investors.
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David Butler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends Constellation Brands and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.