Zacks Investment Research downgraded shares of Constellation Brands Inc. (STZ) from OUTPERFORM to NEUTRAL on April 17, 2013, with a target price of $51.00.
We have downgraded our long-term recommendation on Constellation Brands to Neutral, following a weak bottom-line performance for the fourth quarter of fiscal 2013. The quarterly earnings of $0.47 per share dipped 31.9% from the year-ago quarter, primarily due to higher product costs and shriveled margins. Gross and operating margins contracted 130 basis points (bps) and 40 bps to 37.9% and 19.2%, respectively. Further, we remain apprehensive about the stock's future performance due to rising grape prices. In addition, the company's highly leveraged balance sheet may limit its financial flexibility. However, we believe that Constellation Brands with its formidable portfolio of well-known brands, new product offerings and strategic initiatives to strengthen its foothold in the U.S., holds a promising future. Moreover, the company is enhancing its points of distribution at retail and is well executing its strategic merchandising initiatives, which will help augment sales.
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