Constellation Brands (STZ) vs. Primo Water (PRMW) – Predicting the Top Beverage Stock Performer

As the beverage industry thrives on shifting consumer preferences, technological advancements, and innovative product offerings, let’s delve into a detailed analysis of robust beverage stocks Constellation Brands, Inc. (STZ) and Primo Water Corporation (PRMW) to determine which holds the potential for superior returns.

Let’s understand this in detail.

Conscious consumption, a burgeoning trend where consumers base purchase decisions on personal values, is propelling a profound shift within the beverage industry. Consumers are increasingly demanding transparency about product origins and the processes involved across the entire value chain.

Technological advancements such as Artificial Intelligence (AI) and Machine Learning are also helping companies in cost-effective product development and manufacturing. These technologies optimize supply chains, enhance demand forecasting, and enable personalized customer engagement through tailored advertising and pricing strategies.

Moreover, the global beverages market is set to expand further, driven by increased promotional efforts by manufacturers. According to a report by Mordor Intelligence, the global beverages market is expected to grow at a 4.7% CAGR and reach $4.39 trillion by 2028.

Simultaneously, beverage manufacturers are adapting to evolving consumer tastes and trends by innovating new products. For instance, this year, the market expects a surge in trendy ready-to-drink (RTD) cocktail products to meet alcohol consumers' preferences for convenience.

In terms of price performance, STZ declined 5.5% in the past three months, while PRMW gained 4.7% during the same period. However, over the past six months, STZ witnessed a 5.9% gain, while PRMW has plummeted by 9.9% over the same duration.

Moreover, STZ has gained 8.1% over the past nine months, closing the last trading session at $237.90, whereas PRMW has plummeted 13.2% during the same period, reaching a closing price of $13.46 in the last trading session.

But which Beverages stock could be a better pick? Let’s find out.

Recent Developments

On August 9, STZ-acquired Robert Mondavi Winery unveiled Arch & Tower, a downtown Napa site, in conjunction with a multi-year overhaul of the renowned Highway 29 winery. This could enhance STZ's presence in Napa Valley, broadening its appeal to wine enthusiasts and bolstering its portfolio and brand recognition in the premium wine sector.

In light of a robust second quarter, PRMW has raised its full-year 2023 revenue target to a range of $2.32 billion to $2.36 billion and adjusted EBITDA to a range of $460 million to $480 million.

In addition, adjusted free cash flow is expected to be around $150 million, marking a $10 million increase. This signifies PRMW's optimistic outlook for the future and financial growth potential.

Recent Financial Results

For the fiscal 2024 second quarter that ended August 31, 2023, STZ’s net sales increased 6.6% year-over-year to $3.05 billion. Its net income and net income per common share attributable to STZ stood at $690 million and $3.74, compared to a net loss and loss per share of $1.15 billion and $6.30 in the previous year’s quarter.

However, as of August 31, 2023, the company’s cash and cash equivalents amounted to $83.30 million, compared to $133.50 million as of February 28, 2023.

For the second quarter that ended July 1, 2023, PRMW’s revenue increased 3.8% year-over-year to $593.30 million. Its adjusted EBITDA grew 12.6% from the year-ago value to $121.60 million.

In addition, the company’s adjusted net income rose 16.5% from the prior year’s period to $38.80 million, while adjusted EPS stood at $0.13, compared to a loss per share of $0.14 in the previous year’s quarter.

Past and Expected Financial Performance

Over the past three years, STZ’s revenue and EBITDA increased at a CAGR of 6.4% and 4.3%, respectively. During the same period, the company’s EBIT and normalized net income grew at respective CAGRs of 3.5% and 17.9%.

Analysts expect STZ’s revenue to grow 5.1% year-over-year to $2.56 billion for the fiscal 2024 third quarter ending November 2023. In addition, the company’s EPS for the current quarter is estimated to rise 6.3% from the prior year’s period to $3.01.

Over the past three years, PRMW’s revenue and EBITDA grew at a CAGR of 7% and 13.4%, respectively. In addition, the company’s EBIT and normalized net income surged at a CAGR of 19% and 155.5%, respectively, over the same period.

The consensus revenue estimate of $625.73 million for the fiscal third quarter ended September 2023 reflects a 7% year-over-year improvement. Likewise, the company’s EPS for the same period is estimated to come in at $0.27, up 22.7% from the previous year’s quarter.

Valuation

In terms of forward non-GAAP PEG, STZ is currently trading at 2.25x, 84.4% higher than PRMW, which is trading at 1.22x. Moreover, STZ’s forward EV/Sales multiple of 5.47 is 237.7% higher than PRMW’s 1.62. Additionally, STZ’s forward EV/EBITDA of 14.86x compares with PRMW’s 8.09x.

Profitability

STZ’s trailing-12-month revenue is 4.3 times that of what PRMW generates. STZ has a trailing-12-month gross profit margin of 50.09%, compared to PRMW’s 60.16%. However, STZ’s trailing-12-month EBITDA margin and net income margin are 35.13% and 15.50%, respectively, compared to PRMW’s EBITDA margin of 17.79% and net income margin of 3.81%.

POWR Ratings

STZ has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, PRMW has an overall rating of A, translating to a Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. STZ has a D grade for Value, justified by its higher-than-industry valuation. In terms of forward P/E and forward EV/EBITDA, STZ is trading at 25.40x and 14.86x, 38% and 35.2% higher than the 18.41x and 10.99x industry averages.

On the other hand, PRMW has a C grade for Value, consistent with its mixed valuation. In terms of forward non-GAAP P/E, PRMW is trading at 25.88x, compared to the industry average of 18.41x. However, its forward EV/EBITDA multiple of 8.09 is 26.4% lower than the 10.99 industry average.

In addition, STZ has a C grade for Growth, justified by its satisfactory growth record. Whereas PRMW has an A grade for Growth, in sync with its robust historical growth.

Of the 36 stocks in the B-rated Beverages industry, STZ is ranked #19, while PRMW is ranked #6. 

Beyond what we’ve stated above, we have also rated both stocks for Momentum, Stability, Sentiment, and Quality. Click here to view STZ’s ratings. Get all PRMW ratings here.

The Winner

Leading beverage stocks STZ and PRMW are well-positioned to capitalize on industry growth, driven by shifting consumer preferences, technological advancements, and innovative products. However, PRMW's stronger financial performance, lower valuation, and superior growth track record could make it a better buy compared to STZ.

Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Beverages industry here.

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STZ shares were trading at $238.69 per share on Wednesday afternoon, up $0.79 (+0.33%). Year-to-date, STZ has gained 4.10%, versus a 14.65% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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