Mexican beer import data bolsters our confidence in Corona-maker Constellation Brands
We've touted Constellation Brands (STZ) as a recession-resistant stock since adding it our portfolio last month. A new analyst note provides data that bolsters our confidence in the owner of Mexican beers Corona, Modelo, and Pacifico. The details In a note to clients, Jefferies analyst Kevin Grundy reiterated their buy rating on Constellation Brands with a price target of $305 per share — about 24% higher than where the stock closed Wednesday. Shares were basically flat during Thursday's session. The analyst calls Constellation his "favored large-cap growth idea," given its current enterprise multiple of 16.5, excluding its investment in Canopy Growth , the Canada-based cannabis company. The research piece's "key takeaway" is strong data for Mexican beer imports in March and April —continuing momentum for the category in which Constellation is the dominant player. Mexican imports grew 23.8% and 10.6% year over year in March and April, respectively, according to data from The Beer Institute. The analyst wrote that the trade group's data backs up what Constellation management said during an investor meeting last month, indicating its fiscal 2023 was off to an "excellent start" as depletions in March and April were on par with full-year expectations. (In the beverage industry, depletions measure cases that distributors sell to retailers.) In general, import data can be lumpy, Jefferies cautions, and year-over-year comps for May are tough because in May 2021, Mexican imports nearly doubled compared with May 2020, when the Covid pandemic was in its early days. However, Jefferies still believes what it's seen so far this year bodes well for Constellation in the near term. What else to like Grundy also called attention to supply chain pressures easing, citing management commentary last month, as brewing capacity and logistics operations improve. That will help keep inventory at adequate levels to meet demand. Jefferies acknowledged that input costs are still important to monitor because Constellation has warned about cost pressures for materials like aluminum and wood pallets, as well as labor at its breweries. However, the analysts pointed to the depletion data, suggesting Constellation's favorable momentum outweighs those headwinds. Another positive about Constellation that Jefferies highlighted is something we emphasized on May 5 , when the Club initiated its position in the beer maker: the likely end to the company's dual-class common stock structure. If that proposal goes through at the right terms, it could play a role in the stock getting re-rated. Our view History shows beer sales have been resilient during economic downturns, so we like the idea of owning a high-quality company like Constellation Brands as Wall Street worries about a recession. Beer contributes the majority of STZ's sales and operating income; its other segment is wine and spirits. Then there's the performance of Constellation, specifically. Constellation's organic sales were up 11% in fiscal 2022, which ended Feb. 28, and its fourth-quarter results that were reported in April also were strong. Plus, we're entering into the summer months, which tends to be the busiest time for Constellation's beer brands like Corona. When we took first bought STZ shares in early May, we described the stock as a GARP name — growth at a reasonable price. It was trading around 22 times forward earnings then, but it's actually slightly lower now at 21, according to FactSet. We continue to see upside ahead for the stock, which the Club rates as a 1. That means we'd be buyers at this level . (Jim Cramer's Charitable Trust is long STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A case of Constellation Brands Inc. Corona beer sits on a shelf in a cooler during a delivery in Ottawa, Illinois, U.S., on Tuesday, April 2, 2019. Daniel Acker| Bloomberg | Getty Images