Berkshire Hathaway Acquires Significant Stake in Constellation Brands
Constellation Brands, a prominent alcohol producer, has gained the esteemed endorsement of Warren Buffett's Berkshire Hathaway. According to a recent SEC filing, Berkshire Hathaway holds a substantial 5.6 million share stake in Constellation Brands (STZ) as of the end of 2024. This acquisition solidifies Berkshire Hathaway's position as the sixth-largest shareholder of the beer and liquor giant.
The news of the filing sent Constellation Brands shares soaring by over 5% on Tuesday. "It's a positive for Constellation Brands ... [it's] a big vote of confidence," remarked Garrett Nelson, an analyst at CFRA. Investors frequently follow Berkshire Hathaway's investment strategies due to its decades-long track record of success. Nelson further noted that the investment aligns with Berkshire Hathaway's mentality as "bargain hunters."
"They seek stocks with deep value ... trading at a steep discount to projected future cash flows," explained Nelson. "What they see in Constellation Brands is a stock that has underperformed recently." Berkshire Hathaway has likely already faced losses on its investment, as Constellation shares have declined by 23% year-to-date. However, Nelson believes that Buffett's team has conducted extensive modeling and recognizes the company's value over the intermediate and longer term.
Constellation's forward P/E ratio of 10.92 is its lowest in over a decade, compared to its rivals Molson Coors (TAP) at 10.19 and Anheuser-Busch (BUD) at 14.86. "The multiples reflect skepticism regarding the near-term earnings," noted Nelson. In its third quarter, Constellation missed Wall Street's expectations for both revenue and earnings. Beer volume grew modestly by 3.90%, while wine and spirits volumes declined by 11.60%, falling short of estimates.
Investor concerns stem from potential consumer pullback and the resulting sales of different product mixes. Offering larger pack sizes can erode profit margins. Additionally, the company has revised its fiscal 2025 outlook to predict organic net sales growth of 2% to 5%, lower than the previous range of 4% to 6%.
Despite these challenges, Constellation Brands boasts a healthy free cash flow exceeding $1 billion annually, according to Chris Johnson, director at S&P Global Ratings. This is particularly notable given the company's recent investments in expanding beer production capacity, especially in the United States.
Modelo, now the best-selling beer in America, exhibits robust growth and market share gains, added Johnson. However, the possibility of a 25% tariff on Mexican imports, which is currently suspended until March, looms over Constellation Brands. Price adjustments to offset higher costs could impact demand or profitability.
Industry analysts also express concern about the "bearishness surrounding the consumer staples sector" amidst President Trump's "Make America Healthy Again" initiative. "Many beverage companies ... have experienced significant sell-offs, such as PepsiCo, Coca-Cola ... Brown-Forman, and Boston Beer Company," said Nelson. "This sector has underperformed notably over the past year, exacerbated in 2025."