Bearish stock to watch: Constellation Brands, Inc. Class A (NYSE: STZ)

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Constellation Brands, Inc. Class A (NYSE: STZ) stock fell over 0.1% on October 3rd, 2019 (Source: Google finance) after the company swung to a loss for its fiscal 2020 second quarter. The company reported a net loss of $525.2 million in the second quarter after income of $1.149.5 billion, in the year-earlier period. The company said its share of equity losses and related activities from its $4 billion investment in Canadian cannabis company Canopy Growth Corporation came to $484.4 million, while it recognized $46 million of charges related to cost cutting. In July, the company has issued $800 million of senior notes at an attractive fixed rate and used the proceeds to redeem higher interest rate debt. The company has reduced their net debt level by more than $650 million since the end of fiscal 2019, which allowed us to opportunistically repurchase $50 million worth of stock during the second quarter.

Moreover, STZ has generated free cash flow of $1.1 billion for the first half of fiscal 2020, which is an impressive 10% increase. In second quarter, interest expense increased 27%. This reflects interest expense of approximately $39 million related to the funding for the incremental Canopy Growth investment in November of 2018.

STZ in the second quarter of FY 20 has reported the adjusted earnings per share of $2.72, beating the analysts’ estimates for the adjusted earnings per share of $2.63, according to FactSet consensus. The company had reported the adjusted revenue growth of 2 percent to $2.34 billion in the second quarter of FY 20, which is in line with the analysts’ estimates for revenue of $2.34 billion.

STZ is committed to returning $4.5 billion to shareholders from fiscal ’20 through fiscal ’22. The company expects fiscal 2020 adjusted earnings per share to be in the range of $9.00 to $9.20. The current FactSet consensus is for fiscal 2020 adjusted earnings per share of $8.56. STZ project fiscal ’20 free cash flow to be in the range of $1.3 billion to $1.4 billion and operating cash flow to be in the range of $2.1 billion to $2.3 billion. STZ expect full year capex spend to be in the range of $800 million to $900 million, including approximately $600 million of capex for the Mexico beer operations expansion, including investments in the Obregon and Mexicali breweries as well as the fifth glass furnace at the Nava glass plant. Fiscal 2020 interest expense is expected to be in the range of $430 million to $440 million.

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