Constellation Brands Inc. Stock Valuation Model

Edited by Juna Yanoyan

The model rates stocks from 1 to 10, 10 being the highest, using a system of advanced mathematics to determine a stock’s expected risk and return. I am using different fundamental and technical factors in order to rank a stock.

CRITERIA

Intrinsic value of the stock

Investors should buy stocks selling at a discount to their intrinsic value, then patiently wait for the fair value of their investments to be realized.

STZ‘s intrinsic value is $35.00 while the current price is $36.92, so the stock now trades at its fair value.

Financials

We use ratios to evaluate the financial health of the company.

Sentiment

This measures the investor’s sentiment for the stock.

Analyst Ratings

The model assigns a value according to Wall Street analyst’s recommendation for the stock.

Earnings Consistency

Each year’s EPS numbers should be better than the previous year’s. One dip is allowed, but the following year’s earnings should be a new high. STZ, annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were -2.80, -1.38, 0.40, 2.36, 1.92, this type of earnings action is positive beside the one dip.

Total Debt/Equity

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry

STZ’s Total Debt/Equity of 152.00% is well above our acceptable level. This indicates very high debt risk.

Quarterly EPS Change (This Quarter VS. Same Quarter Last Year)

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 18% that this model likes to see for a “good” growth company.

STZ’s EPS growth for this quarter relative to the same quarter a year earlier is -13.00% well below our target.

Annual Earnings Growth

This model looks for annual earnings growth above 12%, but prefers higher than 20%.

STZ‘s annual earnings growth rate over the past five years is 6.70%, is below our target growth.

Current Price Level

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend.

STZ‘s 52 week high is $36.50 while current price is $36.92. This is 5% below the 52W high.

P/E Ratio

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be “moderate”, which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. PEG should not be higher than 1.0.

The company has a P/E ratio of 19.85 times while the average industry P/E ratio is 17.40 times. This is at a desirable level. The stock PEG is 1.84.

Insider Ownership

When there is strong insider ownership which I define as 12% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders.

Insiders own 0.29% of the 182.46 million worth of stocks outstanding.

Technical Analysis

I am using several technical indicators (MACD, RSI, MFI, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

SCORECARD

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