STZ - Constellation Brands hits new all-time high after deal with activist firm Elliott is viewed favorably

2023-07-19 10:38:12 ET

Constellation Brands ( NYSE: STZ ) traded higher on Wednesday after appointing two new directors and agreeing to share information with Elliott Investment Management. The development is being viewed favorably by both investors and analysts.

Morgan Stanley Analyst Dara Mohsenian called the cooperation agreement with Elliott Management another positive step in terms of governance, which is expected to help reduce STZ's negative capital allocation overhang and allow the market to focus on the robust growth profile for its beer business. The firm reiterated an Overweight rating on STZ, with the Elliott cooperation agreement is seen as improving STZ's governance and helping reduce STZ's negative capital allocation overhang. The development is anticipated to help the market focus on the robust and rebounding growth profile for STZ's beer business, as well as narrow the discount at which STZ trades relative to its topline growth potential. As for the beer part of the STZ business, Mohsenian and team point to inflecting beer depletions and improved visibility on beer margins in FY24 and potential upside in FY25.

Elsewhere, Wells Fargo analyst Chris Carey also thinks the board movement and stake by Elliott management is positive for the beverage stock, although it is unclear what direction Elliott will push in.

Wells' dive into STZ: "Capital allocation? But it's already on a better track. Governance? That has improved markedly (collapsing dual structure, Board refresh). Mgmt? PR reiterated support. Beer? Momentum and it seems to be accelerating. FCF? OK, but could be better. W&S? Ah yes, the typical culprit here. Maybe there...seems the debate."

Shares of Constellation Brands ( STZ ) moved up 4.11% in morning trading and carved out a new high of $266.53 earlier in the session.

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