Image Source: Pixabay

As part of our ongoing series, each week we typically conduct a DCF on one of the companies in our screens. This week, we’re analyzing a premium alcohol giant — Constellation Brands Inc (STZ).

Profile

Constellation Brands (STZ) is a leading producer and marketer of beer, wine, and spirits, with top-shelf brands including Corona, Modelo, Kim Crawford, and The Prisoner Wine Company. The company has carved out a dominant position in the high-end alcoholic beverage category, especially within the U.S. beer segment, through relentless marketing, innovation, and strategic acquisitions. With a focus on premiumization, disciplined capital allocation, and strong free cash flow generation, STZ continues to be a compelling name in the consumer defensive space.

DCF Analysis

Inputs
Discount Rate: 10%
Terminal Growth Rate: 3%
WACC: 10%

Forecasted Free Cash Flows (FCFs) in billions

2025 – FCF: 2.07 | PV: 1.88
2026 – FCF: 2.15 | PV: 1.78
2027 – FCF: 2.25 | PV: 1.69
2028 – FCF: 2.35 | PV: 1.60
2029 – FCF: 2.45 | PV: 1.52

Total Present Value of FCFs = 8.47 billion

Terminal Value Calculation

Using the perpetuity growth model:
Terminal Value = (FCF_2029 × (1 + g)) / (r – g)
= (2.45 × 1.03) / (0.10 – 0.03)
= 2.5235 / 0.07
= 36.05 billion

Present Value of Terminal Value = 36.05 / (1.10)^5 = 22.37 billion

Enterprise Value Calculation

Enterprise Value = PV of FCFs + PV of Terminal Value
= 8.47 + 22.37
= 30.84 billion

Net Debt Calculation

Total Debt = 12.11 billion
Cash = 0.073 billion
Net Debt = 12.11 – 0.073 = 12.04 billion

Equity Value Calculation

Enterprise Value = 30.84 billion
Net Debt = 12.04 billion
Equity Value = 30.84 – 12.04 = 18.80 billion

Per-Share DCF Value

Shares Outstanding ≈ 178.22 million
Per-Share DCF Value = 18.80 billion / 178.22 million = $105.48

Conclusion

DCF Value: $105.48
Current Price: $171.46
Margin of Safety: –38%

Our DCF valuation suggests that Constellation Brands (STZ) is trading well above its intrinsic value based on conservative free cash flow forecasts. While the company boasts strong brands, pricing power, and long-term secular tailwinds in premium beverages, the current valuation may already reflect these strengths — offering limited upside for new investors.

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