Constellation Brands: A Buffett-Backed Bet Against Tariffs and a Shifting Consumer Landscape

The beer giant Constellation Brands (STZ) has long been a favorite among investors for its iconic brands like Corona and Modelo. Yet today, the company faces a perfect storm of headwinds: punishing U.S. tariffs on Mexican imports, weakening consumer demand, and a strategic pivot that may not be enough to offset these challenges. Even as Berkshire Hathaway doubles down on its stake—now holding 6.6% of the company—the question remains: Is STZ a resilient value play or a fading relic of a bygone era?

The Tariff Threat: A 25% Tax on Profitability

Over 99% of Constellation's beer volume originates from Mexico, where it operates two breweries and is constructing a third. The U.S. tariffs on Mexican alcohol imports—imposing a 25% tax on canned beer and aluminum cans—have become a fiscal anchor. Analysts estimate these tariffs could reduce Constellation's earnings by up to $3.50 per share annually. While the company plans to offset costs through price hikes and operational efficiency, the path to profitability is narrowing.

The market has already priced in these risks: STZ's shares have fallen 30% over the past year, trading at a forward P/E of 11.7—far below the broader market. Yet management's revised sales growth forecasts—cut from 6-8% to 2-4% through 2028—highlight the scale of the challenge.

Consumer Trends: The Gen Z Dilemma
While tariffs are a known cost, the bigger threat lies in shifting consumer preferences. Gen Z drinkers are abandoning traditional beer in favor of hard seltzers, cannabis-infused beverages, and craft alternatives. Constellation's beer division, though still profitable, faces headwinds as Modelo—its crown jewel—competes in a crowded market. Meanwhile, its wine and spirits segment has cratered, with sales projected to decline 6-4% in 2025.

The company's response? A portfolio reshuffle: selling off mainstream wine brands to focus on premium products like Robert Mondavi and Kim Crawford. Yet this pivot may come too late. Analysts note that even premium wine categories are struggling as inflation and unemployment rise.

Berkshire's Stake: A Vote of Confidence or a Value Trap?
Berkshire Hathaway's Q1 2025 stake-building—doubling its holdings to $2.2 billion—has been framed as a bullish signal. The firm's rationale is clear: STZ trades at 15x forward earnings (excluding one-time charges), offers a 2.1% dividend yield, and generates $1.9 billion in annual free cash flow. Warren Buffett's philosophy favors companies with durable brands and defensive characteristics, and Constellation's beer dominance fits that mold.

But there's a catch. Berkshire's move coincided with a 17% one-day plunge in STZ's stock following a $2.25 billion goodwill impairment charge. The question now is whether this is a contrarian buy or a “value trap.” While the dividend and cash flow are compelling, the company's reliance on Mexico and its vulnerability to trade policy make it a high-risk bet in a volatile geopolitical environment.

Investment Takeaway: Proceed with Caution
STZ is a paradox: it boasts a fortress balance sheet, a Berkshire seal of approval, and a dividend with growth potential. Yet its exposure to tariffs, Gen Z disengagement, and a shrinking wine division create material risks.

For income-oriented investors, the 2.1% yield and 10-year dividend growth streak may justify a small position. However, growth investors should tread carefully—STZ's revised 2-4% sales growth targets suggest a company in survival mode, not expansion.

Final Verdict
Constellation Brands is a classic “value” story with a 6.6% Berkshire stake and a beaten-down valuation. But tariffs and consumer shifts are no short-term blip—they're structural challenges. While the stock's current price reflects much of the bad news, the path to recovery is uncertain. For now, a hold rating seems prudent, with a preference for investors who can stomach volatility and bet on a turn in trade policy.

Disclosure: The author holds no position in STZ or Berkshire Hathaway at the time of writing.