Constellation Brands (STZ) reported its fiscal 2027 second-quarter results on October 6, 2026, for the quarter ended August 31, 2026. Following the earnings release, the stock fell 4.47% in after-hours trading.
For fiscal 2027 Q2, net sales were $2.633 billion, up 6.1% year over year. The company is not growing particularly fast, but I still consider the growth rate acceptable.
Beer remains its core business. Beer net sales were $2.474 billion for the quarter, up 5.5% year over year, while operating income was $964 million, up 1.4%.
Wine and spirits generated $160 million in net sales during the quarter, representing only a small portion of the company’s overall revenue. Net sales increased 17% year over year, while operating income was $6.1 million, compared with an operating loss in the prior-year period.
The operating income figures discussed here may differ from the operating income reported on the company’s consolidated income statement due to differences in reporting definitions.
For the six months ended August 31, 2026, free cash flow was $1.124 billion. The company paid $354 million in dividends and repurchased $455 million of its own shares, for a combined total of $809 million returned to shareholders.
Is Constellation Brands Undervalued?
The stock has been in a downtrend recently. With shares trading at $115.67 and a market capitalization of roughly $20 billion, I believe the stock may present an investment opportunity.
Overall, I consider Constellation Brands a solid business. The company expects full-year fiscal 2027 free cash flow of $1.6 billion to $1.7 billion. My view of the company remains unchanged, and I continue to value it at $32 billion.
With a current market capitalization of approximately $20 billion, that implies around 60% upside and potentially significant return potential.
In terms of margin of safety, assuming free cash flow of $1.6 billion, the company is currently valued at approximately 12.5 times FCF. That means free cash flow represents about 8% of the company’s market capitalization.
Fiscal 2027 Outlook
The company expects fiscal 2027 organic net sales growth to range from -1% to 1%.
For beer, organic net sales growth is also expected to range from -1% to 1%, while organic net sales growth for wine and spirits is expected to be in the same -1% to 1% range.
The company expects a beer operating margin of 37% to 38%, compared with 5% to 6% for wine and spirits.
Net cash provided by operating cash flow is expected to be $2.4 billion to $2.5 billion, with capital expenditures of approximately $800 million, resulting in expected free cash flow of $1.6 billion to $1.7 billion.
