Constellation Brands, Inc. (STZ): Our Calculation of Intrinsic Value

Core Viewpoint - Constellation Brands, Inc. is facing challenges with high debt levels and margin pressures, despite strong consumer demand and premium pricing in its beer, wine, and spirits portfolio [2][4]. Company Profile - Constellation Brands is a leading player in the U.S. beer, wine, and spirits market, known for brands like Corona, Modelo, and Robert Mondavi [2]. - The company benefits from consistent consumer demand and premium pricing, particularly in the beer segment, which continues to show robust growth [2]. DCF Analysis - The DCF model uses a discount rate of 10% and a terminal growth rate of 3% [3]. - Forecasted free cash flows (in billions) are projected as follows: - 2025: $2.1 → PV: $1.91 - 2026: $2.2 → PV: $1.82 - 2027: $2.3 → PV: $1.74 - 2028: $2.4 → PV: $1.66 - 2029: $2.5 → PV: $1.59 - Total present value of free cash flows is $8.72 billion [3]. Terminal Value Calculation - The terminal value, calculated using the perpetuity growth model, is $36.79 billion [3]. - Present value of terminal value is $23.43 billion [3]. Enterprise Value - The enterprise value is calculated as $32.15 billion, combining the total present value of free cash flows and the present value of terminal value [3]. Net Debt and Equity Value - Constellation Brands has cash of $0.07 billion and total debt of $12.11 billion, resulting in net debt of $12.04 billion [4]. - The equity value is calculated to be $20.11 billion, with approximately 178 million shares outstanding, leading to an intrinsic value per share of approximately $113.00 [4]. Conclusion - The DCF value per share is estimated at $113.00, while the current market price is $133.04, indicating a margin of safety of -15% [4]. - The company continues to generate strong free cash flow from its beer business but faces challenges due to significant debt impacting equity value [4].