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Constellation Faces Long-Term Risks Related to Alcohol Consumption, Morgan Stanley Says

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Constellation Faces Long-Term Risks Related to Alcohol Consumption, Morgan Stanley Says

Constellation Brands (STZ) faces long-term risks related to alcohol consumption, though the beer and wine company stands to benefit from falling gasoline prices and improved market share in the short term, Morgan Stanley said in a note emailed Thursday.

The maker of Modelo and Corona reported fiscal first-quarter results above Wall Street's expectations late Tuesday. Beer shipments rose 1.8%, buoyed by the FIFA World Cup, though high gasoline prices amid the Middle East conflict weighed on depletions, according to the brokerage.

The depletion rate captures the pace at which units are sold to end consumers. Gasoline prices in the US have fallen from $4.29 per gallon a month ago as the US and Iran agreed to end their war and reopen the Strait of Hormuz.

"We remain (equal-weight) longer-term on concerns about secular headwinds to alcohol consumption and some maturation in (Constellation's) portfolio at higher share levels, but see the glass as half full short-term with declining gasoline prices, improved (Constellation) market share trends in scanner data, and moderating social pressures on (its) Hispanic consumers," Morgan Stanley said.

The brokerage lowered its price target on Constellation to $158 from $183 due to weak industry trends and maintained an equal-weight rating.

Constellation's beer depletions were soft in April and May as high gasoline prices impacted consumer spending, Morgan Stanley said. However, the company highlighted a muted recovery in June, driven by improved sentiment and the World Cup, according to the note.

Constellation maintained its full-year outlook, including expectations for comparable earnings per share at $11.20 to $11.90. The FactSet-polled consensus calls for $11.79 in adjusted EPS.

Price: $137.50, Change: $+0.62, Percent Change: +0.45%

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