Constellation Brands Misses the Mark: Value Opportunity or Value Trap in Disguise?

Constellation Brands (NYSE: STZ) reported fiscal Q1 earnings on Tuesday evening that missed Wall Street estimates on both the top and bottom lines, renewing questions over whether the stock's battered valuation reflects a buying opportunity or a deeper structural issue. Despite some optimism entering the print—especially given recent rotation into value names—results fell short of the bar, reinforcing the notion that the beverage sector remains under pressure amid trade headwinds and soft consumer demand.

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For the quarter ended May 31, STZ reported adjusted earnings per share of $3.22, missing the $3.31 consensus estimate by 2.7%. Revenue came in at $2.52 billion, also short of the $2.55 billion forecast. This marked a 5.8% year-over-year decline, underscoring the dual impact of declining beer shipments and the divestiture of Svedka vodka. Operating margin contracted 150 basis points year-over-year, pressured by rising aluminum tariffs and volume weakness. Importantly, this quarter included the initial impact of President Trump's aluminum tariff hikes, which rose to 25% in March and 50% in early June.

Segment performance provided little reason for comfort. The beer segment, which comprises nearly 80% of total revenue, posted a 1.7% year-over-year sales decline to $2.23 billion and a 2.9% drop in operating income to $873.4 million. Shipment volumes were down 3.3%, reflecting weak demand—particularly among Hispanic consumers, who account for roughly half of STZ's beer sales. That cohort has reportedly cut back due to economic concerns and immigration policy fears. The wine and spirits segment was worse, with sales falling nearly 28% to $280.5 million and operating income plunging into negative territory at -$6 million, a collapse versus the Street’s $12 million profit expectation.

Despite the disappointing results, the company reaffirmed its full-year guidance, expecting comparable EPS between $12.60 and $12.90 and organic net sales growth ranging from -2% to +1%. The reiteration helped to steady the stock in after-hours trading, with shares falling just 1.15% after being down as much as 2.6% immediately following the release. However, STZ stock is still down more than 26% year-to-date—underperforming both the broader S&P 500 and the beverage sector—which has been one of the worst-performing groups in 2025.

The key question now becomes whether this quarterly miss represents a clearing event or if more pain lies ahead. Bulls may argue that with the stock trading near multi-month lows around the $159 level, a lot of bad news has already been priced in. Tuesday’s market action also showed rotation into value names, potentially setting the stage for STZ to find support from investors looking for unloved, cash-generative companies. The fact that Constellation reaffirmed guidance—despite a clear earnings and margin shortfall—could suggest internal confidence in a back-half recovery, particularly if tariff relief or consumer sentiment improves.

But skeptics will rightly point to the fact that Constellation has now missed revenue estimates in three of the last four quarters, and EPS estimates in two of the last four. The aluminum tariff story is not going away, and it's increasingly clear that the company lacks pricing power to offset these cost headwinds without volume attrition. The wine and spirits segment, once viewed as a stabilizing asset class, has turned into a margin drag. Further, management commentary attributing weakness to “non-structural socioeconomic factors” may feel a bit too convenient when STZ’s flagship beer brands like Modelo and Corona remain highly exposed to economically sensitive demographics.

Adding to the debate is the relative valuation. STZ now trades at roughly 12x forward earnings—well below its 5-year average and below peers like Brown-Forman (BF.B) and Anheuser-Busch InBev (BUD). However, that discount might be warranted given the operating leverage to aluminum costs and soft consumer behavior. The company’s premium Mexican beer portfolio continues to hold long-term brand strength, but until volumes stabilize and tariffs abate, margin compression may remain the dominant theme.

Ultimately, STZ’s latest earnings report keeps the stock in the “show-me” category. While the valuation case grows more compelling, fundamentals remain challenged and management’s ability to navigate these macro headwinds will be under increased scrutiny. Wednesday’s 10:30 a.m. ET earnings call may provide more clarity, especially on pricing strategy, consumer trends, and margin outlook.

For now, Constellation Brands is walking a fine line between value play and value trap. It may take more than a modest guidance reiteration to convince investors that the worst is behind. Until evidence of operational improvement materializes, caution—and perhaps a drink—may be warranted.