Berkshire Is Loading Up on This Stock. You Should Be Too.

Constellation Brands owns the Corona, Modelo, and Pacifico beer brands. (Gabby Jones/Bloomberg)

Americans are souring on booze —but it could be a sweet time to buy Constellation Brands stock.

Shares of Constellation Brands, which owns the Corona and Modelo beer brands, the Schrader, Ruffino, and Kim Crawford wineries, and several spirits makers, have tumbled more than 25% this year amid near-term challenges due to changing consumer tastes. The concern is that the shift away from alcohol is only starting —and will be a long-term drag on the beverage maker.

Don’t tell that to Warren Buffett, though. Berkshire Hathaway bought about 5.6 million shares of Constellation in the fourth quarter of 2024 and more than doubled its stake to 12 million shares in the first quarter. Berkshire now owns 6.7% of the company, making it the third-largest shareholder. Other top institutions have bought the dip as well.

What’s there for Berkshire to like? Start with Constellation’s valuation, which has gotten so cheap that much of the pessimism may already be reflected in the price. Shares trade for only 12 times earnings estimates for the next fiscal year, a 10-year low and well below the average price/earnings ratio of around 20.

But the stock doesn’t have to get back to that multiple to be a winner. Evercore ISI analyst Robert Ottenstein argued in a recent report that the expected growth for the Modelo and Pacifico beer brands should lead to annual sales gains of about 2.4% for Constellation over the next few years. That, Ottenstein says, “provides a path for the stock to regain its footing and eventually move higher,” while also justifying a midteens multiple.

The consensus price target for the stock is about $202, which is 16 times earnings estimates for this fiscal year. Ottenstein, who has an Outperform on the stock, has a price target of $210, up 30% from a recent $161.53.

Constellation still has some turbulence ahead. BMO analyst Andrew Strelzik, who rates the stock Outperform with a price target of $215, concedes that growth will be challenged, calling this a “transition year” for the company. But he notes that fears of much higher tariffs on Mexico have dissipated, which should help sales going forward.

Constellation is also making changes to its product portfolio to adapt to changing tastes. The company completed the sale of some of its nonpremium brands of wine in June for about $900 million to focus on more expensive brands with higher profit margins. And it is investing in nonalcoholic beverages, with a deal earlier this year for a minority stake in tonic maker Hiyo following a 2023 investment in alcohol-free sparkling beverage maker TÖST.

Make no mistake, though. This transition will take time. Upcoming earnings, due out on July 1, will be sobering. Analysts are predicting a 4% year-over-year drop in sales and a nearly 7% decline in earnings per share. President Donald Trump’s immigration policies are also a concern. Constellation CEO Bill Newlands noted in the company’s earnings conference call in April that about half of its beer sales come from Hispanic consumers.

Despite the near-term challenges, Constellation is too cheap to ignore. It may not be time to sit back and relax on the beach with a Corona and lime just yet, but the stock should age nicely, like a fine wine.

Write to Paul R. La Monica at paul.lamonica@barrons.com