Best Stock to Buy Right Now: Constellation Brands vs. Anheuser-Busch InBev

Constellation Brands and Anheuser-Busch InBev face sluggish sales growth despite their presence in the typically stable alcoholic beverage sector. Constellation Brands, focused on premium brands and primarily US-based, saw a tepid 1% sales increase in Q4 and lowered its medium-term sales outlook, while Anheuser-Busch InBev, with greater global diversification and tariff protection, experienced a 1.5% adjusted top-line increase with declining beer volumes; both companies are underperforming the S&P 500, leading to a recommendation to avoid both stocks in favor of consumer staples with stronger growth prospects.

Analysis

Both Constellation Brands (STZ) and Anheuser-Busch InBev (BUD) operate within the historically resilient alcoholic beverage sector but are currently grappling with sluggish sales growth. Constellation Brands focuses on the premium end of the market, with beer products like Modelo Especial and Corona Extra accounting for 84% of its $8.5 billion in sales for the fiscal year ending February 28. The company is divesting lower-priced wine brands to enhance margins, as its beer business yields a 39.7% operating margin compared to 19.5% for wine and spirits. Despite these strategic moves, STZ reported a tepid 1% sales increase to $2.2 billion in its fourth quarter, though cost-cutting boosted operating income by 6%. Significantly, management has revised its medium-term annual sales growth outlook downward from 6-8% to 2-4%. With over 98% of its sales in the U.S., STZ faces potential risks from tariffs impacting costs or demand. Anheuser-Busch InBev, the world's largest brewer, derives 88% of its 2024 revenue from beer, with brands like Budweiser. Its global diversification, with 76.5% of last year's $59.8 billion revenue from outside North America, offers some insulation from regional weaknesses and tariffs, as most products are made and sold locally. However, BUD also faces challenges, with revenue inching up 0.6% last year and adjusted top-line growth of 1.5% in the first quarter, accompanied by declining beer volumes and market share losses in 40% of its markets. Stock performance has diverged: STZ lost 34.5% over the year to June 12, while BUD gained 15.6%, against the S&P 500's 10.5% appreciation. Despite BUD's global footprint and tariff insulation, the article concludes that neither company presents a compelling investment due to a lack of meaningful sales growth.

Key Decisions for Investors

• Investors should exercise caution and consider avoiding new positions in both Constellation Brands and Anheuser-Busch InBev until there are clear signs of sustained, meaningful sales growth acceleration.
• Monitor Constellation Brands for any further impact of tariffs on its cost structure or demand, and closely watch its ability to achieve even its lowered sales outlook of 2-4% annual growth.
• For Anheuser-Busch InBev, pay attention to ongoing beer volume trends and its success in regaining or maintaining market share in key global markets, despite its diversification benefits.
• Consider reallocating capital towards other consumer staples companies that demonstrate stronger top-line growth and more robust near-term outlooks.