Constellation (STZ) has been one of the best performing stocks in the S&P 500 consumer index for the fourth consecutive year. Many analysts have the company as a top pick for 2016. STZ is seeing a gain in market share in the industry, with solid sales growth in its Corona Extra and Modelo brands. To keep up with demand, the company has announced a $1.5B brewery on the border of California in Mexicali.
STZ data by YCharts
Constellation Brands produced one of the top beer industry headlines of 2015 with a record-breaking acquisition of San Diego based Ballast Point Brewing Company for $1B. This was the largest acquisition ever for a craft beer company. Leverage Equity covered Ballast Point in our article Ballast Point: From IPA to IPO, when the company was destined to be the first craft beer company to go public. One week later, Constellation Brands decided to make the record-breaking acquisition. The rapid rise in popularity of India Pale Ales (IPA) has led to the fast growth Ballast Point has experienced.
Many balked at the high price paid for a company that produced just Ballast Point: From IPA to IPO barrels in 2014, but Constellation's CEO said the purchase price was reasonable due to the company's future prospects. The acquisition was made not due to the current size of the existing brand but to its growth potential; the company grew over 100% in 2015. Revenue of the brand grew to $115 in 2015. 2016 will surely surpass this future due to its significant growth prospects of this highly sought after brand. Constellation's strategy in managing its new acquisition was to stay the course. Ballast Point is on such a good path that Constellation does not want to interfere with the process. The growth it has experienced is not solely due to the new markets the company entered, but the strength it is experiencing in its existing markets as well.
Ballast Point has the potential to become a household name in the beer industry, and Constellation Brands can take them there. The growth Ballast Point has experienced has not slowed down moving into 2016, and the acquisition will undoubtedly help with distribution worldwide. Constellation is seen as a premium alcohol company, making the merger a perfect fit between the ultra premium Ballast Point. The craft beer industry is making beer the new wine, affordable luxury with an alcohol percentage similar to that of wine. Constellation Brands continue to be an attractive investment with its strong management and future growth prospects.
