The stock of Constellation Brands, the leading beer, wine, and spirits company, had an unimpressive 2024. The price fell 8.6% last year and is now down ~23% from its all-time high reached in April. The company just published its third quarter earnings report for the fiscal 2025, which showed 0% YoY revenue growth and reduced profitability. It also lowered its sales guidance for the full year.
Understandably, the stock is down pre-market and likely to fall for the day. The question is, should investors view the post-April dip as a buying opportunity or is it part of a bigger correction yet to unfold? For starters, the Elliott Wave chart below gives no reason for optimism.
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The weekly chart of Constellation Brands shows that the April top at $275 a share is the culmination of a decades-long impulse pattern. We’ve labeled it (1)-(2)-(3)-(4)-(5), where the five sub-waves of wave (3) are also visible. Wave (5) looks like an ending diagonal, whose fourth wave low has already been breached. If this count is correct, we can expect a lot more downside before a complete three-wave correction is in place. The support area of wave (4) near $100 a share looks like a natural bearish target.
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This translates into a decline of more than 50% going forward. We know that such a negative prediction might sound a bit far-fetched, especially when based solely on a price chart. So let’s add some fundamental analysis to the mix.
Constellation Brands has a market cap of roughly $40B. Management guides to no more than $1.8B in free cash flow this fiscal year for a multiple of 22. This is far from cheap for a company growing at low-single digit rates. In addition to its rather high valuation, the company has over $11B of debt on its balance sheet against just $74 million in cash. So, in our opinion, the fundamental situation is far from rosy, either. Coupled with the bearish Elliott Wave setup on its weekly chart, this is more than enough to convince us to stay away from Constellation Brands stock. Instead, we’ll stick to what we already have in our portfolio.
