STZ Closes Mark West Acquisition - Analyst Blog
18 Juli 2012 - 8:29PM
Zacks
Constellation Brands Inc. (STZ) has recently
completed the acquisition of Mark West wine brand from
California-based Purple Wine Company, LLC. Constellation Brands
paid a total sum of $160 million to complete the acquisition. This
strategic move expanded its hard beverage portfolio.
Per the agreement, the acquisition will include some grape
supply contracts and wine inventories from three California labels,
i.e. a California pinot noir, a Russian River reserve pinot noir
and a Santa Lucia reserve pinot noir.
Being the best-selling and fastest growing brand in the U.S.,
Mark West holds leadership in $10 - $12 price category, registering
a growth of 35% in volume in the last 12 weeks. At present,
approximately 600,000 cases of Mark West pinot noir are being sold
annually in U.S. We believe this acquisition will strengthen
Constellation Brands' pinot noir brand portfolio.
At the end of first-quarter fiscal 2013, Constellation Brands
had $69.1 million of cash and cash equivalents. Moreover, the
company generated $96.4 million and $76.8 million of cash from
operations and free cash flow, respectively.
Furthermore, the company has remaining $850 million under its
revolving credit facility. Although the company is silent about the
source of fund, we expect that the company has utilized a portion
of its credit facility to complete the acquisition.
We believe that the company’s strategic initiative of expanding
footholds in the U.S wine industry along with focus on brand
building and promotion will enhance its growth opportunities while
strengthening its market position.
Moreover, in an effort to generate strong margins, Constellation
Brands is also focusing on higher priced segment across all key
categories. The company in a drive to enhance its presence in the
U.S. beer market has entered into an agreement with
Anheuser-Busch InBev (BUD) to acquire the
remaining 50% stake of Crown Imports. Constellation Brands believes
that the acquisition will be significantly accretive to its
earnings per share and free cash flow.
Constellation Brands is the largest wine company in the world
and commands a dominant position in the premium wine segment in the
U.S. The company is also a leading producer of wines in Canada and
New Zealand. This provides a competitive edge to the company and
bolsters its well-established position in the market.
However, the company faces intense competition from other
well-established players in the industry, including Beam
Inc. (BEAM), Brown-Forman Corporation
(BF.B) and Diageo plc (DEO). Moreover,
Constellation Brands also encounters competition from local and
regional players in the respective countries. Consequently, this
may dent the company’s future operating performance.
We currently have a Zacks #2 Rank (short-term Buy rating) on the
stock. Our long-term recommendation on the stock remains
Neutral.
BEAM INC (BEAM): Free Stock Analysis Report
BROWN FORMAN B (BF.B): Free Stock Analysis Report
ANHEUSER-BU ADR (BUD): Free Stock Analysis Report
DIAGEO PLC-ADR (DEO): Free Stock Analysis Report
CONSTELLATN BRD (STZ): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Brown Forman (NYSE:BF.B)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Brown Forman (NYSE:BF.B)
Historical Stock Chart
Von Jul 2023 bis Jul 2024