Constellation Brands, Inc. STZ has encountered a notable resistance level, prompting caution among investors from a technical standpoint. STZ is trading below the 50 and 200-day simple moving averages (SMAs) for quite some time now, which suggests a bearish trend.

Closing at $178.95, STZ remains below its 50-day and 200-day SMAs of $186.61 and $228.92, respectively, indicating a possible sustained downward trend.

STZ Stock Trades Below 50 & 200-Day Moving Averages

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Constellation Brands has shown a lackluster performance, with its shares plummeting 30.6% in the past year compared with the Zacks Beverages - Alcohol industry, which has seen a decline of 16.9%. It also shows an underperformance compared with the broader Zacks Consumer Staples sector and the S&P 500's respective growth of 3.3% and 15.1% in the same period.

STZ’s performance is notably weaker than that of its close competitors, including Diageo DEO, The Boston Beer Company Inc. SAM and Molson Coors’ TAP declines of 23.4%, 21.9% and 8%, respectively.

Constellation Brands’ One-Year Performance

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At its current price, the STZ stock reflects a 34.9% discount from its 52-week high mark. It also indicates an 11.5% premium with its 52-week low of $160.46.

Factors Behind Constellation Brands' Stock Decline

Constellation Brands continues to grapple with significant challenges in its wine and spirits segment. STZ’s wine and spirits segment has struggled with persistent headwinds related to shifting consumer preferences, competitive pressures and operational inefficiencies, weighing on overall performance. The company has been witnessing soft consumer demand and continued retailer inventory destocking in most price segments in the U.S. wholesale market. Further, consumer demand remains weak in the wine category, mainly in the lower-price segments.

Constellation Brands witnessed higher packaging and raw material costs from continued inflationary pressures. Also, increased depreciation and operating costs from brewery capacity expansions act as deterrents.

The company has been witnessing a challenging operating backdrop, including the ongoing consumer dynamics. The subdued overall spend and prolonged value-seeking behavior in consumers might affect the company’s demand. Also, the macro shifts, mainly any change from potential tariff policies, might act as deterrents.

Hence, STZ revised its earnings per share (EPS) outlook for fiscal 2025. The company envisions comparable EPS of $13.40-$13.80 for fiscal 2025 compared with the earlier mentioned $13.60-$13.80. STZ anticipates enterprise operating income on a reported basis to decline 62-65% for fiscal 2025. For fiscal 2025, sales are expected to decline 5-8% year over year for the wine and spirits segment.

Constellation Brands’ Estimate Revision Trend

For fiscal 2025, the Zacks Consensus Estimate for STZ’s sales and EPS implies 2.5% and 11.9% year-over-year growth, respectively. The consensus mark for fiscal 2026 sales and earnings indicates 3.6% and 6.8% year-over-year growth, respectively.

The Zacks Consensus Estimate for Constellation Brands’ fiscal 2025 earnings per share was unchanged in the last 30 days. The consensus estimate for fiscal 2026 earnings per share has moved down 0.1% in the past seven days.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

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Do STZ’s Strategic Initiatives Hold Potential?

Constellation Brands' focus on premiumization is driving strong growth, particularly through its high-end Power Brands in Wine and Spirits. The company is strategically shifting its portfolio toward premium offerings that align with evolving consumer preferences.

To support rising demand for its Mexican beer portfolio and emerging Alternative Beverage Alcohol products like hard seltzers, STZ is expanding its brewing capacity in Mexico. At the end of fiscal 2024, the company had 48 million hectoliters of production capacity across its Mexican facilities, reinforcing its strong operational foundation.

Looking ahead, Constellation Brands plans to invest nearly $3 billion in fiscal 2025-2028 in modular expansions at its existing breweries and the development of a third brewing site in Veracruz. These strategic investments will ensure that the company scales production efficiently to meet growing market demand while strengthening its leadership in the premium beverage alcohol segment.

Additionally, STZ is strategically positioned, thanks to its strength in the beer business. Management anticipates an enterprise net sales increase of 2-5% and the comparable operating income to improve 6-9% for fiscal 2025. It projects 4-7% sales growth, including 1-2% pricing for the beer segment. The company expects operating income to improve 9-12% and an operating margin of nearly 39% for the beer segment.

Undervalued Stock: Is it an Opportune Time to Buy STZ?

From a valuation perspective, STZ shares present an attractive opportunity, trading at a discount than historical and industry benchmarks. The stock trades at a forward 12-month price-to-earnings (P/E) ratio of 13.25X, reflecting a discount to the broader industry’s 15.52X multiple and its five-year high of 23.57X. It stands below the S&P 500’s average of 22.23X.

Trading much below its five-year high and industry peers, the company’s current valuation appears more affordable and appealing, presenting an opportunity to accumulate shares. The stock’s current VGM Score of B validates its appeal.

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How to Play the STZ Stock?

The near-term headwinds from softer earnings and muted guidance indicate that the STZ stock lacks near-term growth potential. While its long-term strategies provide a foundation for recovery, concerns around declining margins, elevated costs and reduced earnings forecasts suggest caution.

Trading at a discounted P/E, below the industry average, the STZ stock looks attractive at this time. However, its muted estimate revision trend and bearish technical indicators call for a cautious approach for new investors. Potential investors should consider waiting for clearer signs of recovery before investing in this Zacks Rank #4 (Sell) stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Molson Coors Beverage Company (TAP) : Free Stock Analysis Report

Diageo plc (DEO) : Free Stock Analysis Report

Constellation Brands Inc (STZ) : Free Stock Analysis Report

The Boston Beer Company, Inc. (SAM) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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