Constellation Brands Stock Slammed on Slashed Guidance

STZ shares are pacing for their biggest loss since 2013

by Lillian Currens

Published on Jan 9, 2019 at 10:06 AM

The shares of Constellation Brands Inc (NYSE:STZ) are down 10.5% to trade at $154.20 this morning -- and touched a new annual low of $152.56 out of the gate -- after the company cut its full-year profit outlook. The Corona parent cited its investment in marijuana name Canopy Growth (CGC), as well as declining wine and spirits revenue. Nevertheless, Constellation did report better-than-expected per-share earnings and revenue for the quarter. 

Prior to today, STZ was in rebound mode. The equity had bounced from its Dec. 24 low of $156.25 to close yesterday at $172.34 -- a more than 10% gain. In fact, STZ yesterday topped its 20-day moving average for the first time since November. Today, however, the equity is looking at its biggest one-day loss in over five years. 

Before its earnings report, the majority of analysts were optimistic on the stock. Eleven considered Constellation Brands a "buy" or better, while six saw it as a "hold" or worse. Plus, the current  consensus 12-month price target of $233.13 represents a 51% premium to current levels. With STZ struggling on and off the charts, the shares could be vulnerable to downgrades and price-target cuts.

Options traders have been bullish on the beer concern, too. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 2.49 is in the 75th percentile of its annual range. This suggests option buyers were picking up STZ calls over puts at an accelerated clip ahead of earnings.

Echoing that, STZ's Schaeffer's put/call open interest ratio (SOIR) of 0.34 sits in the low 4th percentile of its annual range. This indicates that short-term option players have rarely been more call-heavy in the past 12 months. An unwinding of optimism in the options pits could also exacerbate selling pressure on the shares.

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