Buffett Bets Big on Constellation Brands Amid Market Struggles

Berkshire Hathaway takes a major position in Constellation Brands, signaling potential upside in the struggling alcohol sector. Investors await the impact of escalating tariffs and changing consumer habits.

Date: 17-05-2025

AI Rating: 6

Market Adaptation and Value Investing
Warren Buffett’s recent investment in Constellation Brands presents investor intrigue, as the status of the alcohol sector fluctuates amid changing consumer behaviors and tariff implications. The report highlights Buffett's significant buy of over 5.6 million shares, with a 114% increase in the first quarter of 2025, indicating confidence in Constellation's brand portfolio despite recent struggles.

Earnings Per Share (EPS)
One critical piece of the analysis involves the company’s adjusted EPS, which for fiscal 2025 was reported at $13.78 but is forecasted to drop to $12.75 for fiscal 2026. This downward guidance gives investors cause for concern as it indicates that Constellation is facing substantial headwinds amidst tariff pressures and a shift in consumer preferences. This deterioration in EPS expectations rates a 5, as it is slightly negative due to missed expectations.

Free Cash Flow (FCF)
Conversely, Constellation is projected to generate solid free cash flow, with expected FCF of $6 billion to $8 billion from fiscal 2026 through 2028, and a trailing 12-month FCF yield of 5.6%. The company’s ability to repurchase shares using this FCF suggests a potentially strong rebound and reflects positively on its operational management. Thus, we give this metric a rating of 7, slightly positive and exceeding the expectations of cash generation.

Overall Market Sentiment
Despite current challenges, Buffett’s endorsement suggests that he perceives an inherent value amidst market undervaluation; however, the analysts note the challenging dynamics influenced by shifting consumer preferences and tariffs, which create uncertainty. This duality positions Constellation in a delicate balance, confirming Buffett’s reputation for seeking value at low points in cyclical sectors.

Stocks: STZ BRK-B OXY CVX