Constellation Brands (STZ)

Total return at 5 years: 18.9%/year = 16.2% appreciation + 2.7% dividend. The target price ($268) is ex-dividend; the $23 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $275 · Multiples $235) exceeds the market price ($126).

Today — with margin of safety: at $126 trades ~46.2% below its value discounted to today (~$235) — the wide discount we require (≥38%, equivalent to a ~15% annual return); the risk is covered by the margin, not the rate.

At 5 years — Muy infravalorado: the target price ($268) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years comfortably exceeds the risk-free rate (4.5%) — and the discount reaches the required margin of safety.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($126) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-13.3%/year) than we project (3.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.9 bn of owner earnings in year 5 (vs ~$2.1 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on Utilidad neta comparable (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 is the TTM ended August 31, 2026 (US$9,209M of revenue, second quarter of fiscal year 2027), after the wine divestitures of June 2025 (US$845.9M in cash) and the SVEDKA divestiture of January 2025 (US$409.2M). Year 1 (September 2026 to August 2027) is built by levels from the guidance in the October 7, 2026 release (8-K, Item 2.02), which reaffirms fiscal year 2027: consolidated organic growth of (1)% to +1% on a base that excludes US$142M from the March to June 2025 period already divested (guided net sales of US$8,910M to US$9,090M, midpoint US$9,000M), comparable operating margin of 32% to 33% and comparable earnings per share of US$11.20 to US$11.90 (midpoint US$11.55), with a guided comparable tax rate of ~20%. The first half realized totals US$5,065.7M (organic +4%), so the second half implied at the midpoint is US$3,931M, and year 1 results from that half plus a first half of fiscal 2028 with no organic growth (the guided midpoint, not a recovery the company has not anticipated): US$8,997M, -2.3% versus the TTM, because the TTM contains a second half of fiscal 2026 of US$4,143M, 5.4% above the one implied by guidance. The shape is a valley and recovery (the method's rebound exception): year 2 returns to +2% and the path converges toward ~4% by year 5, with the terminal anchored in the beer moat and not in year 1. The adverse scenario takes the low end of guidance (US$8,907M) and the favorable scenario the high end (US$9,087M). The guided comparable tax rate is lower than the reported effective rate, which is distorted by tax valuation adjustments and by the taxation of impairments and divestitures. The year-0 operating margin (30.2%) is the reported one, which includes impairments of assets held for sale (Nelson's Green Brier and the New Zealand wine divestitures, US$68.1M in the half) and transition costs: it is a one-time non-operating charge that does not change the valuation, because the value comes from the comparable net income of year 5 and not from year 0. The year-1 net margin (~21.7%, which reproduces the guided comparable earnings per share of US$11.55 on ~169 million shares) comes from applying the guided earnings per share to the current share base, not from an extrapolation of the historical trajectory (which is contaminated by the US$2,740.7M impairment in Wine and Spirits in FY2025 and by the FY2026 divestitures). From that guided starting point, the path decelerates and then accelerates: year-1 revenue falls because of the second half implied by guidance and then converges smoothly toward ~4% a year by year 5, supported by sustained beer growth (Modelo/Corona/Pacifico/Victoria, ~2% volume with favorable pricing) and by the organic stabilization of wine and spirits after the repositioning toward the premium segment. Maintenance capex is set in line with depreciation and amortization (about US$412M TTM) because total capex (US$819M TTM) exceeds depreciation for an identifiable and verifiable reason: the construction of the third brewery in Veracruz and the modular additions of brewing capacity (more than US$700M in FY2026, ~US$800M budgeted for FY2027) are genuine growth capex, not disguised maintenance (Greenwald rule, section 3). The share repurchase is material (~3% a year year over year, from 175.938M to 170.601M weighted diluted shares between the second quarter of FY2026 and that of FY2027) and is modeled with `sharesPath`, not with cash accumulation: the projected rate (2.0% a year in the base case) is more conservative than the recent historical reduction because the latter was inflated by the extraordinary cash from the wine divestitures, which does not repeat. The exit multiple (17x in the base case, within the 16-22x band of the consumer staples archetype) reflects mixed quality: the beer segment has a genuine moat (exclusive and perpetual license, market-leading brand in dollars) but the consolidated return on capital (~12.1%) only slightly exceeds the 10% bar, and the business carries its own structural risks (CEO transition, wine category in restructuring, tariff exposure in Mexico). The DCF (second lens) uses the same levered cash flow (net income plus D&A less maintenance capex less change in working capital) discounted at the risk-free rate with a floor, with no additional risk premium: risk is charged in the required margin of safety, not in the rate.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $268 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $126, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $268 in 5 years plus $23 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $235. Against the current market price ($126), the margin of safety is 46.2% (trades below the maximum → there is margin) and the total return at that price would be 18.9% annually.

• Current multiple. The P/E of 11× sits at the midpoint of the consumer staples band despite the beer segment's genuine moat.
• Beaten-down stock. The stock is beaten down after two years of noise from the divestitures.
• Margin of safety. There is a margin of safety: the market's perception is meaningfully worse than reality.
• Sensitivity to the terminal multiple. The five-year value depends on the beer segment sustaining its moat; a multiple compression below the band would erode the return.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (96%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. ROIC ~11.5%, barely above the 10% bar.
• Cash conversion. TTM free cash flow (US$1,834.2M) comfortably covers the dividend and much of the buyback.
• Identifiable growth capex. The capex excess over D&A responds to the Veracruz brewery, not disguised maintenance.
• Quality of reported earnings. The last two fiscal years include large impairments that distort GAAP earnings.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The beer segment driver is volume (shipments and depletions) by price: in FY2026 volume fell 3.8% in shipments but favorable price of US$128.2M cushioned the revenue impact. The wine and spirits driver is different: reported total collapsed 62.4% due to the divestitures, but the remaining business grew 7.7% in organic shipments and 6.6% in depletions, a sign that the premium repositioning is working on the smaller base.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-ago-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• FY2027 guidance. Consolidated organic growth guided at (1)% to +1%, essentially flat.
• Beer growth. Volume under pressure, but favorable price and dollar-share gains.
• Wine and spirits recovery. Organic shipment growth +7.7% in the first quarter of FY2027 on the already-trimmed base.
• Reported historical trajectory. Distorted by the 2025 divestitures; not reliable guidance for year 1.

• Beer segment moat. Exclusive, perpetual license, #1 brand by dollars in the category.
• Single-segment concentration. 91% of revenue depends on beer in the U.S.
• Wine and spirits restructuring. Repositioned toward premium after selling the mass-market brands.
• Demographic risk. Dependence on the Hispanic consumer base, undergoing demographic transition.
• Expanding capacity. Third brewery in Veracruz sustains long-term growth.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• ✓Interest coverage (EBIT / interest)8.5x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 96% of ROIC
• !Value creation (ROIC − 10% bar)+2pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 2.0x
• !Float / working capitalConsumes cash $0.1 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.8% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net leverage. Comparable target ~3.0x, deliberately maintained.
• Long-term debt. Fell from US$9,692.9M to US$9,094.9M between February and May 2026.
• Liquidity. Cash of just US$96.6M, typical of a business that prioritizes capital return over cash accumulation.
• Debt maturities. The filing itself warns that current rates are above those on part of the debt maturing in the coming years.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• CEO transition. Nicholas Fink took over in April 2026 after being a director since 2021; no track record as Constellation CEO.
• Family control. The Sands family maintains control via Class B shares and board nomination rights.
• Leverage discipline. Maintains the ~3.0x target despite the divestitures and growth capex.
• Capital return. US$400M+ returned in a single quarter via dividend and buyback.

• Motivated sellers: the US$2,740.7M goodwill impairment in Wine and Spirits (FY2025) and the resulting GAAP loss sank reported earnings without reflecting the value of the beer segment, which keeps growing.
• Bottom of the perception cycle: the stock is beaten down after two straight years of negative headlines from the divestitures, which keeps buyers away despite the remaining business being cleaner.
• Management transition: the CEO change in April 2026 generates execution uncertainty that the market broadly discounts, beyond the specific and limited risk it actually represents.

The market appears to be extrapolating the noise from the wine and spirits restructuring — which has already been executed and is now growing organically — onto the beer business, which had no relation to those problems and keeps gaining market share.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +11%/year (+69% total): the margin of safety protects the downside. The bull (+24%/year, +197% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Demographic risk. Dependence on the Hispanic consumer base, affected by consumption moderation and substitution by GLP-1/cannabis.
• CEO transition risk. Commercial execution at a sensitive moment for the alcoholic beverage category.
• Tariff risk. All beer production is in Mexico, exposed to changing tariffs.
• Wine category risk. The structural deceleration of wine and spirits might not reverse despite the premium repositioning.
• Interest rate risk. Refinancing of outstanding debt at rates higher than those originally contracted.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 12% above the 10% bar, with a +46% margin → a quality business at a good price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 3% at a PEG of 3.7 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 13% (EBIT/EV) + ROIC 12% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -13% vs our 3%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +8%/yr, bull-scenario ceiling +22%/yr over 5y and a +46% margin → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, cost advantage → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -13%, within what we project (3%) — the story squares with the numbers.