Jim Cramer - Mad MoneyConstellation Brands IncSTZWATCHMar 04, 2024

Like all booze companies, they've been hit my GLP-1 weight-loss drugs, the young are drinking less, legal cannabis is taking away customers, and STZ's customer base is Hispanic, which faces Trump's immigration crackdown, so are buying less beer. They have a new CEO who has some alcohol experience. Stocks keeps sinking, down 23% in the last 6 months. They just reported a much better than feared quarter: net sales beat, up 6% year over year, an earnings beat, and good cash flow. Beer shipments are up 5.5% while wine and spirits are improving, up 15.4%, a huge beat. Tequila is the lone bright spot in hard liquor. STZ will buy Spikedade at a low price. However, management did not raise guidance and shares sold off, until the conference call raised the low end of the guidance. It's too soon to say the worst is behind them, but this was the best quarter he'd seen in a long time. Secular headwinds remain big, though.

They report Wednesday. He believes in the new CEO. He expects a subtle turn in beer and cocktail sales.

They report Monday. This and the other alcohol stocks have fallen out of favour. The CEO says that sales are hurt by ICE raids in popular shopping destinations.  Is -36% this year and trading at a very cheap 12x PE, but this low PE is justified given weakening sales and the rise of GLP-1 drugs.

They report Tuesday. The whole sector has stunk, hurt by the weight-loss drugs which reduces cravings for booze. Also, people are switching from booze to weed. Also, the young are more careful with their health. Meanwhile, the buyers of their Mexican beers over concerns by the Hispanic community over mass deportations. This has been downgraded by many analysts. He expects another miss. 

Hurt by the weight-loss drugs, younger people drinking less while their Mexican brands suffer from Trump's immigration crackdown.

Looking at the chart, Feb/Mar was the first bottom around $161, which is where we are right now. Stock's had a very steep decline from $195 to $161 -- very concerning. Volume's coming in with buyers, but not to the extent of sellers in the January drop. It's up today, which is positive.

If you're buying, be very careful. Small position only. Absolutely no support at current level. Everybody's losing money on it, so there's no patience.

He sold on a negative technical formation, when shares started trading below a falling 200-day MA. Growth is weak, only 2-3%. Beer segment is really decelerating, as are wine/spirits. Premium names could suffer if consumers trade down in a weak economy. 35% acquisition of Canopy Growth may also be an overhang.

They report Wednesday. They can't be sure of the impact of tariffs on their products like Mexican beer. They already are challenged by the weight-loss drugs and the health trend. He suspects the immigration crackdown has hurt, because some of their customers are Hispanic.

Big selloff in January, with a lower low in February. Now trying to establish a higher low in March. If it can hold $175, this is a reverse head and shoulders pattern. Looks like a pretty strong technical base forming; for confirmation, need it to break out ~$185-190 to complete the base. If it does, really interesting. RSI still fairly weak.

Down 19% last month, but was already under pressure after the election and a bad quarter. The CEO lacks urgency is fixing the company's problems. Seems to be in denial. With the new Mexico tariffs, he sold half his position today.

Yesterday, LVMH reported a 36% decline in wine and spirits. That is shocking for the entire alcohol sector, and LVMH is the best performer. STZ is -27% in the past year. No alcohol stock is willing to admit to an existential threat, but rather than drinking is normalizing after Covid. He disagrees. Cannabis is cheaper than alcohol, there's a new advisory that links alcohol to increased risk of cancer, younger people are drinking less, and the weight-loss drugs are limited alcohol cravings. What could turn this around is offering something new, like new drinks and better prices (stop increasing prices). 

Today they reported weak numbers, missing on almost every line and cut their full-year sales forecast.

It's been up and down and down. It faces headwinds from the weight-loss drugs reduing consumption of alcohol, potential tariffs on Mexican goods (Modelo is a major brand of theirs), and Latinos, a key consumer, could be deported under Trump. But STZ spews cash and is growing, leading to Trump exempting STZ from tariffs. He just added more shares. He wants STZ to talk about this big brewery they're building in Mexico. He hopes they launch a huge share buyback. This is tricky.

It rallied 3% today, perhaps by a market sensing that Harris will win the election. STZ sells many beers that are popular with Latinos, and immigration will be more liberal under Harris. STZ's beers are made in Mexico, so it could be hit by a Trump tariff. 

He doesn't think a recession is around the corner, would pick names for continued mid-cycle economic growth. This name doesn't have as much growth as others, but earnings are reliable.