Wall Street Stays Bullish on Constellation Brands Stock Ahead of Earnings

Shares of Constellation Brands sold off after the company's last earnings release, but options traders and analysts are still bullish toward the stock

Josh Selway

Apr 5, 2017 at 12:29 PM

After a multi-year run up the charts, beer stock Constellation Brands, Inc. (NYSE:STZ) has pulled back since notching record highs in October. STZ shares took a big hit after Donald Trump's November election win, and more recently sold off 7.1% in the session following the company's earnings release in January.

However, Constellation Brands has historically been one of the best stocks to own in the second quarter, averaging a 6.8% gain for the period over the past 10 years -- and STZ has actually picked up steam since finding support at its 80-week moving average. With the company set to report earnings before the open on Thursday, analysts and options traders have remained bullish on STZ stock.

STZ stock april 5

For starters, seven analysts currently cover STZ, and all of them call the stock a "buy." Moreover, the shares' average 12-month price target of $178.06 stands well into record-high territory. Just this morning, in fact, Susquehanna raised its STZ price target to $158 from $147.

As for options traders, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day call/put volume ratio of 1.96, which tops two-thirds of readings over the past year. This ratio indicates traders have bought to open nearly twice as many calls as puts on STZ over the past couple of weeks.

Not all call traders have been bullish, though. The most popular front-month contract during the past two weeks was the April 170 call, and data from the major exchanges confirms mostly sell-to-open activity here, as traders eye a short-term ceiling for STZ stock. This strategy makes sense, too, since the shares have a Schaeffer's Volatility Scorecard (SVS) of just 9 -- meaning they've tended to make smaller-than-expected moves during the past year, compared to what the options market has priced in.

And while Constellation Brands, Inc. (NYSE:STZ) stock dropped big after its last earnings report, January's sell-off actually broke a five-quarter streak of post-earnings gains for the shares. Overall, STZ has averaged a move of 3.3% in the session after earnings during the past eight quarters. This time around, the options market is pricing in a move of 4.6% for Thursday's session.

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