Constellation Brands (STZ) shares fell early Monday following President Donald Trump's recent executive order to impose tariffs on Mexico and other key trading partners, with Needham believing the move is likely to weigh on the beer and wine company's fiscal 2026 earnings.

The Trump administration on Saturday announced 25% tariffs on goods from both Canada and Mexico, effective Tuesday, along with a 10% levy on imports from China. Constellation distributes imported Mexican beer brands, such as Corona and Modelo.

Trump's order is likely to negatively impact Constellation's earnings by 15% to 20% in fiscal 2026 based on pricing, excluding benefits from the Mexican peso devaluation and incremental cost savings, Needham said in a Monday client note. The company's shares dropped 7% in premarket activity.

The brokerage believes tariff risks have already been priced into Constellation's stock as the current trading multiple is 25% to 33% below the group's historical averages. "While the shares will likely be under pressure today (along with the broad market), we would not be surprised to see investors ultimately start to buy on the weakness, given an already disconnected valuation," Needham analysts Gerald Pascarelli and Jack Siedow wrote in the note.

Last month, Constellation reported a 3% revenue gain in its beer business for the fiscal third quarter with a 1.6% rise in shipments. The beer division's depletion rate, or the pace at which units are sold to end consumers, grew 3.2%, largely driven by a 3% growth for Modelo Especial while Corona Extra declined by about 1%.

In comparison, Needham expects tariffs on Mexico to impact Jack Daniel's maker Brown-Forman (BF.A, BF.B) by a "much lesser extent" than Constellation because of its larger exposure to American whiskey. Trump signaled on Saturday that tariffs on the European Union will be implemented next, with markets anticipating a 50% levy on American whiskey exports, according to the note.

"A 50% levy on American whiskey exports would be detrimental to the category and to (Brown-Forman) specifically, where we estimate a 10-20 (point) earnings impact based on the level of mitigation," according to Needham. Despite "attractive valuation," the brokerage believes it's difficult to see a catalyst to generate "incremental optimism" for the company given the fundamental challenges facing it and distilled spirits in general.

Brown-Forman's shares slipped 2.6% before the opening bell.

Needham said it sees a scenario where the new tariffs may be lifted as Mexico continues to cooperate with the US on several issues.

"If Trump increases the tariff rate above 25% at any point, there is obviously incremental downside risk to (Constellation's) multiple," Pascarelli and Siedow said. "Additionally, as it relates to Mexico, if they start cooperating less with US authorities on the border as a result of the incoming tariffs, this will lower the probability of tariff suspension over the near-term, removing a potential positive catalyst."