Warren Buffett’s Berkshire Hathaway recently made a significant investment in Constellation Brands, purchasing over 5.6 million shares worth more than $1.2 billion. This move has drawn attention from investors and analysts, as Buffett is known for his value investing approach and his ability to identify undervalued companies with strong growth potential. Constellation Brands is a major player in the alcoholic beverage industry, with a focus on beer.
The company has the exclusive rights to distribute popular Mexican brands like Corona and Modelo in the United States. In mid-2023, Modelo Especial became the top-selling beer in the U.S., showcasing Constellation’s success in marketing and managing its brands. Despite the overall decline in U.S. beer consumption, which reached a more than 40-year low in 2024, Constellation’s beer sales have remained resilient.
In the most recent quarter, the company’s net sales from beer increased by 3% year over year, even as total U.S. beer sales fell by over 5% in 2023. Constellation Brands possesses several characteristics that align with Buffett’s investment philosophy. The company has a strong moat in the beer business, a straightforward business model with appealing products, and a relatively low valuation, with a forward P/E ratio of 12.
Buffett’s strategic beer industry bet
Additionally, Constellation offers an attractive dividend yield of 2.2%, which is likely to increase as the company transitions to a new fiscal year. However, some challenges lie ahead for Constellation Brands.
The declining popularity of beer among younger generations, who are turning to alternatives like ready-made cocktails, could be a long-term headwind. Furthermore, potential punitive tariffs on Mexico could impact the company’s Modelo and Corona businesses, although this risk is somewhat priced into the stock. Despite these challenges, Constellation’s management remains optimistic about the future.
They project sales growth of 4% to 7% in the beer segment and overall net sales growth of 2% to 5% for the current fiscal year. The company also expects its comparable earnings per share to rise to $13.40 to $13.80, representing an increase of nearly 10% from the previous fiscal year. As a long-term investor, Buffett may see potential in Constellation Brands, even if current trends are not entirely favorable.
However, some investors may view the company’s guidance as overly optimistic and believe that businesses in weakening product segments carry more risk than potential, even at attractive valuations.
