CONSTELLATION BRANDS, INC. (STZ) stock intrinsic value fair value estimate & owner earnings analysis

Constellation Brands is essentially a U.S. beer business. It holds an exclusive, perpetual license to brew Corona, Modelo Especial and Pacifico in Mexico and sell them in the United States. It makes them in its own breweries at Nava and Obregon, and a third brewery at Veracruz is due to begin production around the middle of fiscal 2027. Beer made $8.3 billion of the company's $9.1 billion in sales in the year ended February 2026, and nearly all of its operating profit ($3.16 billion of segment profit). In 2025 the company sold most of its mainstream wine brands. What is left of wine and spirits is a small group of higher-end brands that earned only $10.5 million last year, down from $325 million, so the remaining value is in beer. Earnings level. We measure the cash the business produces for its owners: operating cash flow with working-capital timing swings removed, less stock-based pay and the capital spending needed to keep the business running. Spending on new brewery capacity tied to sales growth is treated as growth spending, not upkeep. Before interest, that cash has run between about $11.20 and $13.50 per share each year since fiscal 2020, and $12.86 last year. Goodwill and intangible write-downs, including $2.8 billion taken on the wine business in fiscal 2025, were added back as non-cash. They describe money spent long ago, not the cost of running the beer business. They do show that the company destroyed a lot of capital in wine, and we count that history against management's acquisition record. We start from about $2.05 billion a year of pre-interest cash. That is a little below the fiscal 2020-2026 median, because the wine profits that are now gone made up part of those earlier years, and because last year's cash taxes ($174 million, against $333 million two years earlier) were unusually low after tax disputes were settled. What has changed. Beer shipments fell 3.8% last year and depletions (distributor sales to retailers) fell 2.1%. The company says Hispanic consumers, its core buyers, cut back amid economic uncertainty. Aluminum tariffs also raised costs, and beer segment profit fell 7%. Per-share owner earnings fell about 3% in the year, which is the starting point for our near-term path. Base case: about $156 per share. Beer cash flow falls about 3% next year, roughly in line with last year's decline, and 1% the year after. It then grows about 1% a year on the brand's record of yearly price increases (pricing added $128 million last year even as volume fell). We give no credit for regaining volume or share. Once Veracruz is built, capital spending should settle closer to upkeep levels. Spending already fell from $1.2 billion to $875 million last year, and we credit about $150 million a year of that, not more. After year 10 we assume no growth, with the license and brands simply continuing. The business is worth about $37.1 billion. It owes about $10.5 billion in notes and commercial paper. Because most of the notes carry fixed coupons between 2.25% and 4.95%, many running into the 2030s and 2040s, the debt is cheaper than our yardstick, and we credit about $0.9 billion for that. That leaves about $27.5 billion for shareholders. Bear case: about $90 per share. Our model is the 2008-2010 recession, when U.S. imported-beer volumes fell sharply as Hispanic construction and service jobs disappeared. Here beer cash flow falls about 10%, 7% and 4% over three years. That decline is added on top of today's weak trend, and it also allows for a tariff on Mexican-brewed beer, since all of the company's beer is made in Mexico. Earnings then recover only about 1% a year, and after year 10 they shrink 1.5% a year as Americans drink less alcohol. Capital spending stays high. The business is worth about $25.4 billion, it owes about $9.6 billion after the low-coupon credit, and about $15.9 billion is left. Even at the low point, pre-interest cash of about $1.75 billion covers the roughly $350-400 million interest bill more than four times. Notes due December 2026 and May 2027 (about $1.1 billion) will be refinanced at higher rates, which the debt figure already reflects. Bull case: about $207 per share. Volume steadies next year and pricing plus a modest volume recovery deliver about 2.5-3% annual growth. Capital spending falls by about $375 million a year once Veracruz is running, bringing upkeep spending closer to depreciation of about $420 million. The business is worth about $46.4 billion, and after debt about $36.8 billion is left. What would make this wrong. Two risks could take value below the bear case. The first is a lasting U.S. tariff or border measure aimed at Mexican-made beer, because the company has no U.S. brewery for these brands. The second is a long-term decline in beer drinking among younger adults that turns out deeper than the 1.5% yearly decline we assume. Our previous figures were built on a different basis and are not comparable with these. Margin-of-safety price. We are fairly sure of the earnings level. Pre-interest cash has stayed within a narrow band for seven years, through COVID, inflation and the wine sale, and the perpetual license means the beer business is not at risk of losing its brands. The worst plausible event is a sustained tariff on Mexican beer. The company would survive it: the debt is long-dated and fixed-rate, and interest is covered several times over even in the bear case, though earnings and the dividend would drop. If we are wrong about both the volume recovery and capital spending, the shares are worth around the bear case of $90. During the holding period the dividend of about $4 a share is roughly 4% a year of a $100 price. From $100, the base case implies that a modest move toward our base value over an assumed three-year holding period, plus that dividend, comes close to a 20% annual return, and the bear case implies a value somewhat below that price. For those reasons the margin-of-safety price is $100.