Corona beer on the beach by Jake Bradley via Unsplash

Constellation Brands (STZ), which sells Modelo and Corona beer, is a strong free cash flow producer. However, the stock is well off its highs and has low valuation metrics. Should investors buy it here? This article will discuss ways to play Constellation Brands.

Constellation Brands closed at $195.62 on Friday, May 16, well off its six-month peak of $244.31 on Dec. 9, 2024. The six-month chart below shows that it's up from its lows as well.

(Click on image to enlarge)

Image Source: Barchart - last six months, as of May 16, 2025

I previously discussed Constellation Brands' free cash flow performance around a month ago. It was at $185.30 a month ago, so it's risen by +5.5% since then. But does it have further to go? 

Valuing Constellation Brands Stock

There are three ways to easily value the stock, using free cash flow (FCF) estimates, earnings estimates, and its dividend yield history.

Free Cash Flow Yield Method

Management guided for free cash flow (FCF) for its fiscal year ending Feb. 2026 in its latest April 9 earnings release. After several divestitures, Constellation's outlook is between $1.5 billion and $1.6 billion in FCF for 2025.

Therefore, assuming the market will give the stock a 4.2% FCF yield (i.e., twice its present 2.09% dividend yield), the market value could be worth:

• $1.55 billion est. FCF (midpoint of guidance) / 0.042 = $36.91 billion

That is about +6% higher than its present market value of $34.83 billion at $195.62 per share.

In other words, the stock is worth +6% more or $207.36 per share, based on the midpoint of management's guidance. That could take a year to occur, assuming management's guidance on free cash flow comes to pass.

Forward Price/Earnings Method

Analysts surveyed by Seeking Alpha (16 analysts) have an average earnings per share (EPS) estimate of $12.71 for the year to Feb. 2026 and $13.79 for FY 2027. That means it will be on a forward EPS next 12-month (NTM) run rate of about $13.25 per share. Its forward price/earnings (P/E) will be:

• $195.62 price today / $13.25 NTM EPS = 14.76x

This is lower than its average five-year forward P/E of 20.51x, according to Seeking Alpha, and 18.89x, according to Morningstar. So, using the average of these two (19.7x):

• $13.25 NTM EPS x 19.7x = $261.03 target price.

Moreover, using a more conservative multiple of 18x, the stock is worth:

• $13.25 x 18 = $238.50 target price

That is still +21.9% higher than its price today.

Dividend Yield Method

Constellation pays $1.02 quarterly ($4.08 annually), so its dividend yield today is 2.08567% (i.e., $4.08 / $195.62). However, Yahoo! Finance reports that its average yield over the last five years has been 1.47%, and Morningstar reports its five-year average yield has been 1.43%.

So, using an average 1.45% yield, here is what the stock is worth if it were to rise to this average yield:

• $4.08 dividend / 0.0145 = $277.55 target

This is 41.88% higher than today's price.

Summary Value

The price targets based on these three methods are:

• FCF Yield: $207.36, +6%
• Forward P/E: $238.50, +21.9%
• Dividend Yield: $277.55, +41.9%
• Average: $241.14 per share, +23.3%

The bottom line is that based on these three methods, the stock is still worth more than 23% over its current price.

How to Play Constellation Brands

Does that mean the stock will jump from here? Maybe, but conservative investors might want to wait to buy in at a lower price. For one, it might be worthwhile until fiscal Q1 earnings are released (for the quarter ending May 30) are released.

After all, management is likely to update its free cash flow guidance for the full year, especially now that the tariff regime has made some impact on its sales.

OTM Short Put Play

More risk-averse investors can set a lower buy-in target, and get paid while waiting, by shorting out-of-the-money (OTM) puts.

For example, the June 13 expiration shows that puts with a 5% lower exercise price (i.e., $185.00) have a midpoint premium of $1.73. That means short-sellers of these put contracts can make an immediate yield of almost 1.0% (i.e., $1.73 / $185.00 = 0.00935 = 0.935%).

(Click on image to enlarge)

Image Source: Barchart - puts expiring June 13, as of May 16, 2025

This means that an investor who secures $18,500 in cash with their brokerage firm can “Sell to Open” 1 put at $185.00, and the account will receive $173.00. That works out to a yield of 0.93% for the next month.

Note that there is low risk here (the delta ratio is just 21%). This implies just 1 in 4 odds (i.e., 1/5 chance) that Constellation Brands will fall to $185.00 over the next month. 

Moreover, even if that happens, the breakeven point is lower at $185.00 - $1.73, or $183.27. That is 6.3% below Friday's closing price. However, if Constellation rises, short-put players can't make more than the short-put yield, with none of the upside in the stock.

ITM Call Options

Some investors may want to buy deep in-the-money (ITM) call options in long-dated expiration periods to gain upside in Constellation stock. This allows the investor to invest less money (total capital) for the same potential upside.

Look at the Oct. 17, 2025, expiration call option chain. It shows that the $180 strike price calls trade for $26.00 at the midpoint. In other words, to buy 100 shares, an investor can save a lot of money. 

For example, at today's price, 100 shares cost $19,625 (100 x $195.62). However, for a call option at $180.00 expiring in five months, the cost is just $2,600 (i.e., 100 x $26). This is because each option contract represents 100 shares (note that the delta option is high at 0.69865, or about $70 upside for every $1 increase in Constellation Brands).

(Click on image to enlarge)

Image Source: Barchart - calls expiring Oct. 17, 2025, as of May 16, 2025

Here is how that might work out. For example, if Constellation rises to the target price of $241.00 by Oct. 17, 2025, the return is +23.3% (see above). But the call option will have a value of $61 (i.e., $241-$180 strike price). So, the investor's return is:

• $61-$26 cost = $35, or $3,500 profit
• $3500 profit / $2600 cost = 135% ROI

That is 5.8x the 23.3% long-stock return.

Moreover, OTM short-put investors who repeat the monthly short-put play for five months can potentially reduce the investment cost by $865 (i.e., $1.73 income x five months x 100). That lowers the actual investment cost to just $1,735 for 100 shares, or $17.35 per contract. This means the investor's breakeven is:

• $180 +$17.35 = $197.35.

That is less than 1% over today's cost of $195.62. The bottom line is that investors can take advantage of Constellation's upside by selling short out-of-the-money puts and/or buying in-the-money calls.

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