Fading Constellation Brands Stock Gets Downgraded

This marks the first equivalent to a "sell" rating for Constellation Brands

Aug 20, 2018 at 9:12 AM
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Alcoholic beverage specialist Constellation Brands, Inc. (NYSE:STZ) has struggled on the charts in recent months, with losses mounting since a late-June post-earnings bear gap despite the company's continued push into the cannabis business. On Friday, STZ shares breached the $200 mark for the first time since last October. This came just after the stock traded as high as $236.62 earlier in the year, putting them in danger of falling into the red on a year-over-year basis. This underperformance has caught the attention of at least one brokerage firm, with the equity receiving a rare downgrade this morning.

Susquehanna this morning lowered its rating on Constellation Brands to "negative" from "neutral," and cut its price target to $171 from $199 -- territory not explored since April 2017. This marks the only analyst rating equivalent to a "sell" seen on the Street for STZ, with 12 of the 14 brokerages in coverage handing out "buy" or "strong buy" endorsements coming into today. Moreover, the consensus 12-month price target remains up at $246.26.

On the surface, recent options activity appears bullish, too. 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 2.48, which ranks in the 81st annual percentile, showing a stronger-than-usual demand for long calls over puts. However, a closer look reveals a number of large spread trades that crossed during that time, muddying the sentiment picture in the options pits.

For pure premium buyers, the security hasn't been a very profitable target over the past year. This is according to its Schaeffer's Volatility Scorecard (SVS) of 10 (out of a possible 100), a number that shows it's made much smaller-than-expected moves on the charts in the past year. At the moment, though, near-term volatility expectations seem reasonable, since STZ's Schaeffer's Volatility Index (SVI) of 19% ranks in the bottom quartile of its annual range.

Constellation Brands stock is set to open 1.8% lower, which will put it right above the $200 mark, near the round $40 billion market cap. Even with the recent struggles on the charts, the shares' longer-term uptrend remains in place, but the 80-week moving average will be worth monitoring going forward. This trendline acted as a floor during a pullback in early 2017, and STZ closed just above the moving average last week.

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