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Constellation Brands has gone from market darling to question mark in less than two years. The owner of Modelo Especial, Corona Extra, Pacifico, and Victoria is still one of the most profitable beer businesses in the world, but its share price has fallen roughly a third as investors reassess what happens when a premium growth engine hits a volume plateau.

From our perspective at DeepValue, Constellation today is a classic value‑meets‑quality puzzle: a dominant Mexican beer franchise, still compounding cash flows, but now facing macro stress on its core Hispanic consumer, steep aluminum tariffs, and a massive capital program in Mexico that has to earn its keep.

In this piece, we’ll walk through what the latest filings and industry data actually say about the business, why the stock screens as a “potential buy” rather than a screaming bargain, and which signposts we think matter most over the next 6–18 months.

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Where Constellation Brands Stands Today

Constellation Brands is, first and foremost, a beer company.

According to the 10‑K (2025), p.2, beer contributed $8.54 billion of net sales in Fiscal 2025 versus just $1.67 billion from Wine and Spirits. The core economic engine is a tightly integrated Mexican production footprint that converts U.S. demand for its imported brands into premium‑priced, high‑margin cash flows. Beer volumes have grown for 15 consecutive years through FY25, supported by intense marketing spend and steady capacity expansion in Mexico, as highlighted in the DEF 14A (2025), p.3.

But FY26 has broken that streak on the depletion side.

In Q3 FY26, beer depletions fell 3% year‑on‑year and shipments were down 2.2%, with beer net sales down 1% 8‑K (2026), p.1. That followed earlier quarters of mid‑single‑digit declines, as reported in company commentary and coverage summarized in our source set from Reuters and others. At the same time, the Wine and Spirits segment is shrinking sharply after divestitures, with Q3 FY26 net sales down 51% and shipments down 70.6% 8‑K (2026), p.1.

So the story now is very clear: this is effectively a premium Mexican beer pure‑play, with rising earnings concentration in a single demographic‑exposed category.

A Premium Beer Franchise Under Macro Pressure

The key question isn’t whether Constellation’s brands are strong. They are.

According to the company’s investor relations blog and U.S. scanner data summarized there, in Q3 FY26 Constellation remained the #3 dollar share gainer in tracked beer channels, with four of the top 15 dollar share‑gaining brands, and Modelo Especial remains the #1 U.S. beer by dollar sales [Constellation IR blog, Jan 2026]. That brand strength lines up with the high margins we’ll discuss next.

The issue is demand among its core drinker.

Hispanic consumers represent roughly half of Constellation’s U.S. beer base, and many of its brands over‑index in construction‑heavy Sunbelt markets. Coverage from Reuters (Jan 2026) and MarketWatch (Jan 2026) highlights how construction slowdown, elevated Hispanic unemployment, and immigration crackdowns have all pressured high‑end beer baskets. Macroeconomic and policy stress is making its way directly into depletions.

We see a few important nuances in the data:

Modelo Especial and Corona Extra depletions were negative in Q3 FY26, but Pacifico and Victoria grew >15% and 13% respectively, pointing to intra‑portfolio mix shifts rather than a wholesale abandonment of Mexican imports [Constellation IR blog, Jan 2026].
Constellation is still taking price and gaining dollar share, implying that the category headwind is about frequency and occasions, not loss of brand loyalty.
Industry‑wide, health and moderation trends are softening beer volumes, particularly for higher‑ABV and higher‑calorie options, as noted by Barron’s (Jan 2026).

Our read: the demand problem looks cyclical and macro‑driven, but it’s happening on top of longer‑term moderation trends. That’s a different risk profile than if the brand were simply “breaking,” yet it still matters for how much capacity this system can profitably absorb.

Still World‑Class Beer Margins – For Now

Where the story remains impressive is profitability. Despite aluminum tariffs and weaker fixed‑cost absorption, beer margins are holding up shockingly well.

In Q3 FY26:

Beer operating margin reached 38.0%, up 10 bps year‑on‑year, even with 50% aluminum tariffs and negative mix 8‑K (2026), p.2.
Aluminum now represents 41% of Mexican beer packaging, and the company is simultaneously facing a 25% Section 232 duty on beer and empty cans, as discussed in industry commentary cited by Reuters (Jan 2026) and C.H. Robinson (Apr 2025).
Management has already realized over $145 million in annualized cost savings towards a >$200 million FY28 target from its 2025 restructuring initiative 10‑K (2025), p.18 and [Investing.com, Jan 2026].

According to the 10‑Q (2026), p.43, these margins are being defended through a mix of:

Premium pricing and favorable price/mix
Lower depreciation due to an evolving asset base
Efficiency and restructuring savings that offset higher cost of product sold

We interpret this as strong evidence of a moat: brands and a vertically integrated Mexican supply chain that can push through substantial input inflation without sacrificing profitability.

But it also narrows the margin for error. If tariffs stay elevated and growth fails to return, there is only so much cost‑cutting and pricing left to do before margins eventually move down.

Heavy Capex in Mexico: Smart Long‑Term Bet or Overbuild Risk?

The most contentious part of the Constellation story today is its capital allocation to Mexico. Management is all in.

Per the 10‑K (2025), p.3 and p.33:

The company plans roughly $2 billion of “Mexico Beer Projects” capex during Fiscal 2026–2028.
These projects include the new Veracruz brewery and modular expansions, aimed at lifting total capacity towards ~55 million hectoliters.
In FY25 alone, it spent nearly $940 million on brewery expansions, optimization, and Veracruz construction.

Meanwhile, FY26 guidance calls for about $1.2 billion of capex, with roughly $1.0 billion directed to Mexico beer operations, funded by operating cash flow of $2.5–$2.6 billion and free cash flow of $1.3–$1.4 billion 10‑Q (2026), p.46 and 8‑K (2026), p.5.

The strategic logic is straightforward:

Capacity growth has historically been a bottleneck: Constellation has expanded Mexican capacity roughly fourfold since acquiring U.S. rights to Corona and other imports in 2013, and from ~42M hl to ~48M hl between FY23–FY25 Constellation FY25 10‑K (2025).
Mexican imports remain the key growth pocket in U.S. beer; NACS/NIQ data show Mexican imports adding $1.86 billion in U.S. convenience store sales from 2022–2024, with Modelo Especial alone driving 58% of that growth [NACS/NIQ, Apr 2024].
Management expects macro pressures to ease and is gearing up for the 2026 World Cup as a major demand catalyst Reuters, Jan 2026.

But the risk side is equally clear:

If beer depletions stay negative in the mid‑single digits through and beyond the World Cup, the case that this is a “plateau then recover” story weakens materially.
Heavy fixed‑cost assets in Mexico can flip from margin enhancers to negative‑leverage machines if volume assumptions prove too optimistic.

In the 10‑K (2025), p.33 and 10‑Q (2026), p.52, Constellation explicitly flags the risk of underutilized capacity and potential impairments. We view this as one of the key “thesis breakers”: if, by FY28, the company discloses material impairments or capacity write‑downs linked to these Mexico Beer Projects, the core capex‑driven earnings power thesis will have failed.

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Valuation: Is STZ Stock a Buy in 2026?

So what are investors paying for all this?

Our judgment, based on current trading around $148, is “POTENTIAL BUY” with moderate conviction (3.5/5). Here’s why.

From the Financials (FMP), at roughly $147.96 per share, Constellation is trading on:

P/E of 23.27x
EV/EBITDA of 46.44x
Net debt/EBITDA of 15.39
Interest coverage of 8.69

The earnings multiples look rich if you take them at face value, but they are distorted by the shrunken Wine and Spirits segment and accounting noise. Management guides to FY26 comparable EPS of $11.30–$11.60, implying the stock is at about 13x forward comparable earnings. Free cash flow guidance of $1.3–$1.4 billion suggests an FCF yield in the mid‑single digits, depending on how you adjust for working capital and stock‑based comp 8‑K (2026), p.5.

We framed scenarios as follows:

Base case (50% probability):

Beer depletions flatten by FY27 and margins hold at 36–38%. EPS compounds at a high single‑digit rate. On this path, a fair value around $170 (roughly 15x forward EPS) looks reasonable over 12–24 months.

Bull case (25% probability):

Hispanic employment recovers, macro stabilizes, and the 2026 World Cup catalyzes renewed demand. Beer depletions return to 2–3% growth by FY27 with margins near 38–39%, and EPS grows low‑teens annually. In that world, we see valuation stretching towards $190.

Bear case (25% probability):

Depletions stay at ‑3% to ‑5% annually through FY27, margins grind down towards 34–35%, and the Mexico capex looks increasingly overbuilt. Our implied value in this scenario is closer to $120.

On a probability‑weighted basis, that gets us to an intrinsic value around $170, giving a moderate upside from current levels but not a huge margin of safety. This is why we emphasize position sizing. The downside is not trivial if beer remains structurally weaker than management expects.

Will Constellation Brands Deliver Long‑Term Growth?

Whether Constellation can meet or beat that base case comes down to three levers:

1. Beer volumes and depletions

2. Beer margins and cost savings

3. Returns on Mexico capex

1. Volumes: From Decline to Plateau?

The market’s implicit assumption, judging from sentiment compiled from Reuters, Barron’s, and other outlets, is that beer depletions will stabilize around flat over the next 12–18 months.

Our monitoring framework focuses on:

Quarterly depletions for key brands: Modelo Especial, Corona Extra, Pacifico, Victoria, and cheladas. If ongoing strength in Pacifico and Victoria fails to offset persistent mid‑single‑digit or worse declines in Modelo and Corona, it suggests deeper brand equity erosion [MarketScreener, Jan 2026].
Hispanic labor data: we track BLS Hispanic unemployment and construction employment. A sustained move in Hispanic unemployment above roughly 6–7% or a clear contraction in Hispanic construction employment would signal deeper structural demand issues [BLS Employment Situation, Aug 2025; Hispanic Construction Council, Sep 2025].
FY27 guidance and commentary: management’s outlook on depletions and beer net sales growth in FY27 will be critical markers for whether volumes can return to low‑single‑digit growth, as hinted in the Constellation FY26 outlook update, Sep 2025 and the [Constellation IR blog, Jan 2026].

We are not counting on a V‑shaped recovery. A slow march from low‑single‑digit declines to flat by FY27 would be enough to support our base case, provided margins hold.

2. Margins: Can 36–38% Be Sustained?

Beer operating margin is the fulcrum of the whole story. In Q3 FY26, that margin was 38.0%, and management reiterated its commitment to defend high‑30s margins through pricing, efficiency, and mix rather than heavy promotion, as discussed in MarketScreener (Jan 2026).

Key things we are watching:

The progression of cost savings towards >$200 million by FY28, versus the current >$145 million run‑rate [Investing.com, Jan 2026].
The balance between price/mix and volume: if price increases start to trigger meaningful volume or share losses, the elasticity math changes.
Any relief or escalation on aluminum tariffs and Section 232 duties, per future policy developments flagged by Reuters (Jan 2026).

A sustained drop in beer operating margin below 35% for several quarters would be a serious red flag. Our thesis explicitly breaks if margins settle in the low‑30s rather than the mid‑to‑high‑30s.

3. Capex Returns: Veracruz and Beyond

By FY28, Constellation expects to have roughly 55M hl of Mexican capacity in place 10‑K (2025), p.33. That capacity must either be fully utilized at attractive margins or written down.

We view three outcomes:

Healthy: volumes stabilize and gradually grow, absorbing capacity and supporting solid returns on invested capital (ROIC).
Muddling: volumes flatline but stay high enough that margins hold, leading to mediocre but acceptable ROIC on the new projects.
Damaging: volumes undershoot, leading to underutilized assets, margin compression, and potential impairments.

Monitoring disclosures around brewery utilization, capex phasing, and any early ROIC commentary in future filings and calls (for example, in the upcoming Q4 FY26 earnings and FY27 outlook) will be crucial.

How the Market Narrative Has Shifted

Understanding sentiment is important because it often shapes entry points.

Our review of media and analyst commentary shows a clear evolution:

2024–early 2025: The story was “premiumization resilience” – Constellation as a growth leader in a slow‑to‑no‑growth beer category.
Mid‑2025: Guidance cuts and three consecutive quarters of depletion declines shifted the focus to macro headwinds and whether the high‑end Mexican import boom was peaking [ValueTheMarkets, Jul 2025; yourNEWS, Sep 2025].
Early 2026: Coverage now frames Constellation as a fallen high‑flyer with a stock down 35–40%, but still profitable and possibly bottoming in volumes [Barron’s, Jan 2026; Reuters, Jan 2026].

We would describe sentiment as “crowded cautious.” Everyone is talking about the same set of risks—Hispanic consumer stress, aluminum tariffs, and capex intensity—while acknowledging brand strength and cost savings. That tends to be a fertile hunting ground for disciplined value investors, as long as you have a clear plan for what would make you change your mind.

Practical Checklist: What Long‑Term Investors Should Watch

To make this actionable, here’s how we would translate our thesis into a monitoring checklist over the next 6–18 months:

1. Quarterly beer depletions and share data

Are depletions improving versus the ‑3% in Q3 FY26?
Do STZ brands remain among the top dollar share gainers in U.S. tracked channels?

2. Beer operating margin trend

Does margin hold in the 36–38% range despite tariffs and capacity ramp?
Are incremental cost savings continuing, or stalling below the $200M target?

3. Hispanic employment and construction metrics

Any signs of stabilization or improvement in BLS Hispanic unemployment and construction employment?
Do trade associations like the Hispanic Construction Council continue to highlight structural labor demand, or does policy risk dominate?

4. Capex disclosures and early Veracruz performance

Is capex timing being adjusted to demand signals?
Any negative commentary on returns or utilization in Mexico?

5. Guidance updates and 2026 World Cup commentary

Does FY27 guidance embed a return to flat or low‑single‑digit beer net sales growth?
Are World Cup plans and expectations realistic, or is management over‑leaning on a one‑off event?

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Our Bottom Line on STZ: A Potential Buy, Not a Blind Bet

Putting it all together, here’s how we see Constellation Brands right now:

The business quality is still high. Beer margins in the high‑30s, powerful brands, a vertically integrated Mexican production network, and a long record of volume growth through FY25 all support a robust moat, as documented in the 10‑K (2025), p.2 and p.40 and DEF 14A (2025), p.3.

The balance sheet and valuation are more mixed. Leverage is elevated and traditional valuation multiples look demanding, but when you adjust for comparable EPS and free cash flow, the stock around $148 prices in a lot of pessimism without assuming a total collapse.

The margin of safety is thin. This is not a deep‑value cigar butt; it’s a quality franchise at a fair (and potentially attractive) price if you believe volumes will stabilize and capex earns a reasonable return. If macro and consumption trends stay ugly, permanent capital impairment from underutilized Mexican assets becomes a real possibility.

Our stance: STZ is a reasonable accumulation candidate for long‑term investors who:

Size the position modestly relative to portfolio risk,
Are willing to track quarterly data on depletions and margins,
And are prepared to reassess if, by late FY27, beer volumes have not at least flattened and margins remain under pressure.

For such investors, the current setup offers a favorable skew: upside towards $170–$180 in a base case, more if the bull case plays out, against a downside scenario around $120 where multiple things go wrong simultaneously.

If you want to stress‑test this view or apply the same framework to other consumer names, you can use DeepValue to replicate and extend our analysis.

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Constellation Brands (STZ) Deep Research Report: Margin Pressured or Opportunity in 2026? What Long-Term Investors Should Watch