Grupo Modelo sued Constellation Brands over its use of the Corona brand for a hard seltzer.
Kris Connor/Getty Images for NYCWFF
Constellation Brands closed lower Tuesday, following news that Anheuser-Busch InBev is suing the spirits maker over its use of the Corona brand in its hard-seltzer product. Yet Goldman Sachs spies a buying opportunity.
Analyst Bonnie Herzog reiterated a Buy rating and $275 price target on Constellation Brands (ticker: STZ), which she also named to her firm’s Conviction Buy list this month. Herzog wrote that while she takes “no view on the outcome of this litigation, we believe the selloff in Constellation’s stock …is overdone and has provided a nice entry point especially considering how small Corona Hard Seltzer is to Constellation’s total portfolio today.”
The lawsuit stems from a 2013 agreement between Constellation Brands and AB InBev (BUD) about use of the Corona brand. When AB InBev acquired Grupo Modelo—which owns Corona and other brands—it agreed to sell the U.S. business to Constellation to address government antitrust concerns, while retaining the rights to the Grupo Modelo portfolio elsewhere. AB InBev’s Grupo Modelo arm is now suing Constellation, saying that the latter’s license to use the Corona brand is only for beer, and that the hard-seltzer product therefore violates the pact.
Constellation says the claims are without merit and that it has fully complied with the agreement.
Herzog noted that AB InBev waited over a year after Corona Hard Seltzer hit the market to file the lawsuit, and that Constellation told AB InBev about the March 2020 launch months in advance. In addition, the litigation comes as the two firms settled a different arbitration “where the outcome didn’t go in AB InBev’s favor,” she said.
That said, uncertainty over the outcome of the lawsuit is likely to be a slight overhang on Constellation stock in the near term. The company could take a hit if it is forced to change the formula for the hard seltzer, to make it malt-based instead of a sugar-based drink. A resolution of the suit indicating that Corona Hard Selzer is not a beer could also negatively affect hard-seltzer brands from a tax perspective, she said.
Ultimately, she predicted, the lawsuit won’t have a major impact on Constellation, especially given that Corona Hard Seltzer only accounts for about 3% of the company’s sales volume. She still says the stock is likely to move higher over the long term, given faster and more profitable growth.
Constellation stock, which ended down 3.8% on Tuesday, the first trading day after news of the lawsuit emerged, was flat on Wednesday morning.
Write to Teresa Rivas at [email protected]
