Constellation Brands (STZ) EV/OCF Hits 12.2x Lowest in 10 Years Amid Volume Declines and Cash Flow Strength

Constellation Brands, the beverage giant behind powerhouse beer brands such as Corona and Modelo, finds itself in an intriguing valuation spot amid shifting industry dynamics. With its enterprise value to operating cash flow (EV/OCF) multiple dipping to levels not seen in a decade, around 12.2 times, investors are presented with a potential opportunity to reassess the company’s fundamentals against a backdrop of moderating beer demand and strategic pivots towards premiumisation.

Valuation Metrics in Focus

At a time when consumer staples are under scrutiny for their resilience, Constellation Brands’ current EV/OCF ratio stands out. This metric, which gauges enterprise value against operating cash flow, has compressed to approximately 12.2x, marking its lowest point over the past ten years. Historically, the company has traded at higher multiples, often reflecting robust growth in its beer segment and efficient capital allocation. For context, as of 26 August 2025, the shares trade at $158.70, down 3.04% from the previous close of $163.68, with a market capitalisation of $27.98 billion and a forward P/E of 10.46 based on expected earnings per share of $15.17.

This contraction in valuation multiples arrives amid broader headwinds in the alcoholic beverage sector. Beer volumes have faced pressure, with industry data indicating declines for several key players. For instance, recent reports highlight a 3.3% volume drop for Constellation Brands itself, aligning with similar trends at competitors like Molson Coors, which reported a 7% decline. Such softness stems from evolving consumer preferences, economic pressures, and a shift towards alternative beverages, including non-alcoholic options and spirits.

Cash Flow Strength Amid Challenges

Despite these challenges, Constellation Brands maintains a solid cash flow profile, a cornerstone of its appeal. The company has consistently generated strong free cash flow, with projections from analyst models suggesting figures around $2.07 billion for 2025, escalating to $2.45 billion by 2029 under a discounted cash flow framework. Using a perpetuity growth model with a 3% growth rate and 10% discount rate, the terminal value could reach approximately $36.05 billion, discounted to a present value of $22.37 billion. This leads to an estimated equity value of $18.80 billion, or about $105.48 per share, implying the stock may be trading above intrinsic value on conservative assumptions.

Operating cash flow targets for fiscal 2026 are set at $2.7 billion to $2.8 billion, with expectations of high single-digit growth thereafter. This discipline in cash generation has enabled strategic moves, including debt reduction and shareholder returns. Net debt stands at around $12.04 billion, yet the firm’s focus on premium brands has bolstered margins, particularly in its beer division, which contributes the lion’s share of profits.

Industry Trends and Premiumisation Strategy

The beer industry is navigating a period of transformation, with premiumisation emerging as a key theme. Constellation Brands has capitalised on this by emphasising high-end offerings like Corona and Modelo, which command stronger pricing power. According to Brand Finance’s Beers 50 2022 report, Corona topped the list of most valuable beer brands at $7.0 billion, followed closely by Modelo at $3.9 billion. This premium focus has helped offset volume declines, with the company updating its fiscal 2025 outlook to net sales growth of 4% to 6% and comparable EPS of $13.60 to $13.80, as announced on 3 September 2024.

However, recent analyst sentiment reflects caution. Bank of America downgraded the stock to underperform on 26 August 2025, citing weak beer demand and forecasting a 2.5% drop in beer depletions for the second quarter of fiscal 2026, with a revised price target of $150. This aligns with Citi’s negative 30-day catalyst watch, maintaining a neutral rating but expecting reduced guidance due to soft trends, with a target of $174. Such views underscore risks from slowing consumption, tougher comparisons, and potential margin pressures, as volume growth has been integral to the company’s industry-leading margins.

On a brighter note, some analyses point to undervaluation opportunities. An EV/EBITDA multiple of 10.7x as of June 2025 sits below historical averages, while a free cash flow yield of 6.4% highlights the stock’s attractiveness for cash flow-focused investors. The 50-day moving average of $168.24 and 200-day average of $189.07 indicate a downward trajectory, with shares down 16.06% over the past 200 days, yet this could signal a buying window if industry headwinds ease.

Strategic Initiatives and Risks

Constellation Brands is not standing still. The firm is innovating with new product sizes, such as seven-ounce options for Modelo and Corona, to address price sensitivity among consumers, particularly Hispanic demographics, which form a core market. Inflation and economic concerns have led to reduced restaurant visits, with 75% of Hispanic consumers reportedly cutting back. Geographically, Modelo’s market share in California is twice the national average, offering expansion potential.

Risks remain pronounced. The alcohol sector faces structural challenges akin to the tobacco industry’s decline in the 1960s, with health trends and regulatory scrutiny potentially curbing long-term growth. Analyst forecasts warn of further pressure if beer trends do not rebound, potentially eroding the company’s cash flow advantages.

Investor Implications

For investors, the compressed EV/OCF multiple invites a deeper dive into whether this represents a value trap or a genuine bargain. With a buy rating average of 1.8 and upcoming earnings on 1 July 2025 (earnings call on 2 July), the next quarterly update could clarify trajectories. If premiumisation continues to drive cash flows and the company navigates demand softness through disciplined allocation, the current valuation could prove compelling. Conversely, persistent volume weakness might justify the discounted multiples.

In summary, Constellation Brands’ decade-low EV/OCF ratio underscores a pivotal moment for the brewer. Balancing strong cash generation against industry headwinds, the firm exemplifies the tensions in consumer defensives today. Investors weighing entry should monitor beer depletion trends and capital deployment, as these will dictate whether the valuation reset heralds opportunity or caution.

References

• Acquirer’s Multiple. (2025, August). Constellation Brands (STZ): Our Calculation of Intrinsic Value. https://acquirersmultiple.com/2025/08/constellation-brands-stz-our-calculation-of-intrinsic-value/
• ainvest.com. (2025, July 25). Constellation Brands: Navigating Headwinds, Premium Focus, Cash Flow Discipline. https://www.ainvest.com/news/constellation-brands-navigating-headwinds-premium-focus-cash-flow-discipline-2507/
• ainvest.com. (2025, June 25). Constellation Brands: Navigating Structural Headwinds, Valuation Opportunities. https://www.ainvest.com/news/constellation-brands-navigating-structural-headwinds-valuation-opportunities-2506/
• Bank of America. (2025, August 26). BofA Cuts Constellation Brands to Underperform on Weak Beer Demand. https://investing.com/news/stock-market-news/bofa-cuts-constellation-brands-to-underperform-on-weak-beer-demand-4211155
• Brand Finance. (2022). Beers 50: The Most Valuable Beer Brands 2022.
• Constellation Brands. (2024, September 3). Constellation Brands Updates Fiscal 2025 Outlook. https://ir.cbrands.com/news-events/press-releases/detail/303/constellation-brands-updates-fiscal-2025-outlook
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