We came across a bullish thesis on Constellation Brands, Inc. on Bearstone’s Substack. In this article, we will summarize the bulls’ thesis on STZ. Constellation Brands, Inc.’s share was trading at $156.70as of January 30th. STZ’s trailing and forward P/E were 18.50 and 12.02 respectively according to Yahoo Finance.
Natalya Okorokova/Shutterstock.com
Constellation Brands (STZ) is a durable, cash-generating business focused on premium Mexican beer, complemented by a smaller portfolio of high-end wines and spirits. The company is in the final stages of a multi-year Mexican brewery expansion, with roughly $2 billion earmarked for fiscal 2026–2028 to add 7 million hectoliters of capacity. Once complete, growth capex will fall sharply, revealing the largely hidden maintenance spending that has been embedded in prior expansion cycles.
STZ’s beer segment currently operates near full economic capacity, generating approximately $62.26 per hectoliter in after-tax operating cash flow, with maintenance capex of $6.96 per hectoliter, leaving $55.30 of steady-state cash per unit. This strong capital efficiency underpins the company’s disciplined approach to modular expansion, which is projected to deliver an internal rate of return of 17.2–17.5%, well above industry norms for large-scale greenfield projects. Even modest downside assumptions only reduce returns slightly, highlighting the robustness of the underlying economics.
Following the completion of the Veracruz and other Mexican brewery projects after 2028, STZ’s capital requirements are expected to drop to $256 million annually, reflecting pure maintenance spending. This transition will liberate $750–950 million in additional free cash flow, bringing total annual free cash flow to $2.55–2.75 billion.
With a market capitalization near $26 billion, this implies a free cash flow yield of 9.8–10.6%, providing ample optionality for deleveraging, dividends, share repurchases, or strategic acquisitions. Constellation’s measured growth strategy, strong brand portfolio, and predictable cash generation make it a high-quality, low-risk investment positioned for substantial long-term shareholder value.
Previously, we covered a bullish thesis on Constellation Brands, Inc. (STZ) by RepresentativeAd4940 in March 2025, which highlighted the company’s dominant beer brands, attractive valuation after wine and spirits impairments, and resilient consumer base. STZ’s stock price has depreciated by approximately 11.67% since our coverage due to market headwinds. Bearstone shares a similar perspective but emphasizes the Mexican brewery expansion, capital efficiency, and post-2028 free cash flow potential.
Add Comment