ABSTRACT

Abstract ................................................................................................. 247 14.1 Constellations Brands in the Wineries and

Distillers Industry ....................................................................... 248 14.2 Financial Ratios ......................................................................... 251 14.3 Valuation Methods ..................................................................... 257 14.4 Conclusion ................................................................................. 265 Keywords .............................................................................................. 265 References ............................................................................................. 266

ABSTRACT

This chapter provides a case study for Constellation Brands Inc. operating in the Wineries & Distillers Industry with a portfolio of products that includes well-known premium brands of wine, beer and distilled spirits. Two competing firms in the industry; Diageo plc and BrownForman Corporation, have similar products, and therefore the financial ratio-averages for these two firms are calculated to represent industry

benchmarks. First, we compare Constellation’s financial ratios to the industry benchmarks and find that Constellation has relatively high debt service combined with low profitability ratios, perhaps making the common stocks of Constellation less attractive to the investors. Second, we apply four valuation techniques: dividend growth, free cash flow, earnings, and relative value (multiples) models for Constellation’s common stock (STZ), and find that it is undervalued in 2013. This finding is consistent with the analyst recommendations of mostly “buy” and some “hold” decisions for STZ.