The shifting alignment of Constellation
Ah, how quickly a love affair can last on Wall Street. Just three months ago it appeared that the stars were aligned for the world’s biggest wine producer, Constellation Brands, with rising profits and an even more quickly rising share price. Although the management wasn’t quite able to pull off what would have been a stunning takeover of Allied Domecq, they could dry their eyes on their stock certificates, which were now to be included in the S&P 500 average.
After announcing their earnings last night, the shares traded down almost 6% today to close at $23.43. Yes, quarterly sales were up 15% year-over-year to $1.19 billion but those numbers now include Robert Mondavi, which the company acquired in the fourth quarter of last year. Without Mondavi, sales were up only 3%.
The company announced last week that it is making a $900 billion bid for Canada’s leading winemaker, Vincor, whose management rejected the bid. These share price jitters should be giving Constellation’s management pause in pursuing their acquisitive strategy.
Last quarter I wondered how much farther could the shares go when they were at $30. This recent pullback has taken the froth of the shares (now a PE of 18, down from 25), which are still up 9% for the year. But the Street will likely want the company to digest its acquisitions better before going back for another round.
Disclosure: I don’t own any shares of Constellation.
