TickerTalk Headlines for July 7th
In this newsletter:
Constellation Brands Stock Q1 2025: Crushing Anheuser-Busch?
Constellation Brands (NYSE: STZ) is in the consumer staples sector and is the fourth-largest beverage company in the United States by market capitalization. The firm has underperformed the market and its sector over the past 12 months. It has provided a total return of 3%, while the consumer staples sector is up 6% over the same period. The firm released fiscal Q1 2025 earnings on the morning of June 3, 2024. It beat on earnings-per-share (EPS) and slightly missed on revenue. Shares traded down 3.3% on the day of the release. Let's get some context around Constellation’s business, explore its earnings, and compare it to its leading competitor.
Constellation Brands: Beer Business Leading the Way
Constellation is an international producer and marketer of alcoholic beverages, including beer, wine, and spirits. It operates well-known Mexican beers like Corona Extra, Modelo, and Pacifico. It is the second-largest beer company in the U.S., and Modelo is its number-one beer brand in America in terms of sales. Pacifico and Corona Familiar are tied for the fastest-growing imported beer brands.
The company operates two revenue-generating segments: Beer, Wine, and Spirits. Beer accounts for 82% of sales, wine 16%, and spirits 2%. The company is investing heavily in its beer segment, spending $900 million in fiscal year 2024. It used this money on brewery optimization, which increased production capacity by 14%, as well as constructing a new brewery in Veracruz, Mexico. It plans to spend an average of $750 million over each of the next four years on similar investments. It intends to increase production capacity by another 35% by the end of fiscal year 2028. The beer segment boasts higher gross margins of 52%, compared to 46% for wine and spirits.
The firm's main production costs come from packaging materials. Glass bottles make up most of these costs. Glass bottle usage makes up 58% of products sold, and aluminum 39%. Yeast and wheat are other key inputs. The firm's competitors include Anheuser-Busch InBev (NYSE: BUD), Heineken (OTCMKTS: HEINY), and Boston Beer (NYSE: SAM).
Earnings Show Strength in Constellation's Beer Segment, Weakness in Wine and Spirits
The firm reported adjusted EPS of $3.57, 12 cents above consensus estimates of $3.45. Revenue was essentially in line with estimates, at $2.66 billion, growing 6% from the previous year. Revenue from beer grew by 8%, while income from beer grew by 16% because of an expansion in operating margin of 260 basis points to 40.6%.
One key metric the firm highlights is the depletion rate, which was 6.4% in the beer division. This measures the growth in product sales from distributors to retailers. This helps measure how much product reaches the end customer, rather than just being shipped to a distributor and sitting in a warehouse. It is a more accurate measurement of demand growth. Demand for Modelo Especial and Pacifico drove growth, increasing by 11% and 21%, respectively.
Wine and spirits sales dropped 7%, and the depletion rate was -12.7%. The operating margin in this division decreased by 370 basis points to 15.3%. These factors resulted in segment operating income declining by 25%.
The company reaffirmed its full fiscal year guidance. It expects adjusted EPS to range between $13.50 and $13.80, which aligns with expectations.
Constellation Brands vs. Anheuser-Busch InBev: Who's on Top?
Constellation has some notable strengths compared to its rival, Anheuser-Busch InBev (InBev). One can see strengths and weaknesses in credit strength depending on the metric used. Constellation reported a much higher debt-to-equity ratio of 112% compared to 85% for InBev, a comparative weakness for Constellation. The EBIT (earnings before interest and taxes) to interest expense ratio measures how many dollars of earnings a firm has for each dollar of interest expense on its debt. Constellation is more capable of making its interest payments with this metric coming in at 8.0x versus 3.8x for InBev.
Other notable advantages include Constellation's net income margin of 24%, which is three times higher than InBev’s 8%. Constellation’s net income margin sits in the 91st percentile of the consumer staples sector. Constellation also shows an advantage in capital expenditure (CAPEX) growth at 23%. InBev's declined 10%. But, InBev's overall CAPEX is still over 2.6x higher than Constellation's. This makes sense, given that InBev is still a much larger firm, with a market capitalization that is 3.4x higher than Constellation. Constellation has a forward price-to-earnings ratio of 17.9x compared to 17.4x for InBev. In line with this multiple, analyst price targets for both firms imply a 20% upside from current levels.
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Qualcomm Stock Continues to Rise in the Face of Negative News
Qualcomm (NASDAQ: QCOM) is one of the leading players in the semiconductor industry. The firm has outperformed the market and industry over the past 12 months, with a total return of 75%. Over the same period, the SPDR S&P Semiconductor ETF (NYSEARCA: XSD) is up just 15%. Let’s look at Qualcomm’s business segments, recent earnings, and news, and close with some metrics from analysts covering the firm.
Qualcomm: Chip Design and IP Licensing Segments
Qualcomm operates primarily in two reportable segments: Qualcomm CDMA Technologies (QTC) and Qualcomm Technology Licensing (QTL). QTC manufactures chips for use in mobile devices, vehicles, the Internet of Things, and other consumer and commercial technologies. The company’s core chip platform is Snapdragon. Snapdragon processors are commonly used in phones using the Android operating system. Qualcomm is a fabless chip designer, meaning it only creates the blueprints for its chips; it does not manufacture them itself. The firm's primary chip suppliers are Global Foundries (NASDAQ: GFS), Samsung Electronics (OTCMKTS: SSNLF), and Taiwan Semiconductor Manufacturing Company (NYSE: TSM).
QTL licenses parts of Qualcomm's intellectual property and patents that other firms use to make and sell wireless products. Qualcomm has approximately 164,000 active patents worldwide, and it continually invests in research and development (R&D) to earn more patents. In 2023, the company received 3,854 new patents. This came in second for the most number of patents in the United States, only behind Samsung.
The QTC segment accounts for the vast majority of total revenue, coming in at 84% compared to 14% for QLT. 67% of QTC revenue comes from handheld devices. QLT is the much higher margin segment. The earnings before taxes (EBT) margin was 26% for QTC, compared to 68% for QLT.
Qualcomm has another reportable segment, Qualcomm Strategic Investments. It makes private and public investments in early-stage companies. Lastly, QGOV is a nonreportable segment. It provides services and sells products to U.S. government agencies and their contractors.
Qualcomm’s Solid Fiscal Q2 2024 Earnings and Negative News Reports
Qualcomm reported solid earnings compared to analyst estimates for fiscal Q2 2024. Adjusted earnings-per-share (EPS) came in at $2.44, 12 cents above analyst expectations of $2.32. It also beat moderately on revenue at $9.39 billion, compared to the $9.35 billion estimate. Gross and net income margins grew substantially from the previous year, up 114 and 330 basis points, respectively. The firm also released higher-than-expected guidance for fiscal Q3 2024, at a midpoint adjusted EPS of $2.25, compared to expectations of $2.16. Automotive revenue in the QTC segment grew impressively. Sales rose 35% from the previous year.
Qualcomm’s shares have continued to rise in the face of multiple negative news stories since its last earnings release. Shares are up 13% since May 2, 2024. First, the US government revoked the licenses of Qualcomm and Intel (NASDAQ: INTC) to sell their chips to Huawei Technologies, a Chinese mobile phone and laptop maker. This is a policy to protect the nation's defense and economy. It aims to limit China's access to high-end semiconductors and its use of artificial intelligence. This didn't hurt Qualcomm's shares much on the day of the news. Huawei isn't among the firm's top ten customers, and its business with the company is already shrinking.
That's not all. Reports have revealed that some software doesn't work with the firm's latest Snapdragon chips. These chips are for new AI-powered Windows laptops. Software from Adobe and popular computer games like "League of Legends" and "Fortnite" were impacted. A particularly troubling aspect of this is that Windows PCs have traditionally used chips made by Intel. Hiccups in the rollout of their new technologies may cause PC makers to go back to suppliers they know better, like Intel. This could hinder the firm from achieving its goal of having its chips used in 50% of the PC market by 2029. Qualcomm's shares fell 5.7% on the day of the news.
Rising Analyst Price Targets Despite Negative News
Nine analysts have upgraded their price targets on Qualcomm since May 21st. The average of these price targets is $242, implying an upside of 26%. This doesn’t seem all that crazy, despite the negative news, considering that Qualcomm’s forward price-to-earnings ratio is at 19.6x. This is below average for the technology sector, ranking only in the 35th percentile.
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Top 3 Summer Stocks with Solid Growth Opportunities
The summer season often brings heightened economic activity, making it a favorable period for investors to focus on building a growth-oriented portfolio. Growth investing typically centers on companies with the potential for rapid earnings growth. Often characterized by innovation and expansion, these companies can offer significant returns for investors willing to take on some risk. As summer approaches, investors can utilize seasonal investing strategies to identify companies expected to perform well during this period of increased demand.
Seasonal Investing Strategies for Summer Growth
One such strategy is sector rotation, which involves strategically shifting investment focus toward sectors expected to perform well during specific seasons. The summer months typically witness increased demand in particular sectors, creating investor opportunities. These sectors include travel and leisure, energy, and consumer discretionary.
The concept of seasonal demand also significantly influences stock prices. Companies that benefit from increased consumer activity during the summer months often see their stock prices rise as investors anticipate higher earnings. For example, this seasonal demand often affects retailers selling outdoor gear, beverage companies, and travel companies.
Airbnb: Disrupting the Traditional Hospitality Industry
The travel and leisure sectors typically experience a surge in demand during summer. Families take vacations, individuals embark on leisure trips, and businesses hold conferences and retreats. This increased travel activity directly impacts companies operating in this space, making it a potential growth area for investors during the summer.
One company that has experienced significant growth in the travel and leisure sector is Airbnb (NASDAQ: ABNB). Airbnb offers a unique platform that connects travelers with hosts, offering rooms, apartments, and other accommodations in various locations worldwide. This platform, which operates as a peer-to-peer marketplace, has disrupted the traditional hotel industry by providing more affordable and diverse lodging options.
Airbnb’s financial performance has been strong, particularly in its post-pandemic recovery. In the first quarter of 2024, Airbnb reported revenue of $2.14 billion, representing an 18% year-over-year increase. The company also reported a net income of $264 million, a significant improvement compared to the previous year. The company's strong financial performance is driven by increasing Nights and Experiences Booked, a modest increase in Average Daily Rate (ADR), and the timing of Easter, which occurred earlier in the year.
Beyond Airbnb’s earnings report, the company is expanding its offerings and investing in new initiatives. The company recently launched Icons, a new category of extraordinary experiences hosted by notable individuals in various fields, including music, film, television, art, sports, and more. This move expands Airbnb's reach beyond traditional accommodations, targeting a broader audience and strengthening its brand.
Airbnb also continues to invest in features that cater to group travel. With over 80% of bookings on Airbnb being for groups, the company is introducing tools to simplify group trip planning, including shared wishlists, a redesigned Messages tab, and trip invitations.
Airbnb's active listings, excluding experiences, increased by 15% year-over-year in Q1 2024, highlighting the company's continued growth in supply. This supply growth, coupled with the company's innovation and strong demand, positions Airbnb as a compelling growth stock for investors looking to capitalize on the summer travel season.
NextEra Energy: Leading the Clean Energy Transition
Summer often brings increased demand in the energy sector. As temperatures rise, the need for air conditioning and other energy-intensive activities increases, boosting energy consumption. This rise in demand can benefit energy companies that can meet it efficiently and cost-effectively.
NextEra Energy (NYSE: NEE) is a leading player in the clean energy sector. It is the world's largest wind and solar energy producer, playing a pivotal role in the global shift towards renewable energy sources. NextEra Energy has a track record of successful project development and stable earnings, making it an attractive investment for investors seeking growth and stability.
The company has ambitious plans for further expansion, including investing in renewable energy projects across the United States. This growth strategy is underpinned by increasing demand for clean energy solutions as governments and businesses seek to reduce carbon emissions.
In the first quarter of 2024, NextEra Energy reported an adjusted earnings per share (EPS) growth of approximately 8.3% year-over-year. This growth is attributed to FPL (Florida Power & Light Company), a subsidiary of NextEra Energy, and NextEra Energy Resources, NextEra Energy's competitive clean energy business. FPL placed 1,640 megawatts of new, cost-effective solar into service during the quarter, while NextEra Energy Resources added approximately 2,765 megawatts of new renewables and storage to its backlog, demonstrating the company's continued growth in this sector.
NextEra Energy's financial performance has been solid in recent quarters. Coupled with the company’s status as a dividend aristocrat with over 30 years of dividend growth, NextEra Energy becomes a compelling choice for investors seeking a balance between growth and income during the summer months.
Tesla: Dominating the Electric Vehicle Market
The consumer discretionary sector encompasses companies selling non-essential goods and services that consumers may purchase based on their discretionary income and preferences. This sector typically sees increased spending during the summer months as consumers have more disposable income for leisure activities and vacations.
Tesla (NASDAQ: TSLA) is a dominant player in the electric vehicle (EV) market. The company is known for its innovative technology, high-performance vehicles, and ambitious growth plans. Tesla has been a highly volatile stock, but its long-term potential remains high due to its leading position in the rapidly growing EV market.
Tesla's growth is driven by increasing demand for its vehicles and its expansion of production capacity. The company is also venturing into energy storage and solar products, creating additional avenues for growth.
Tesla's financial performance has been a mix of strong growth and challenges. Tesla’s earnings for the first quarter of 2020 revealed a GAAP net income of $1.1 billion, down significantly year-over-year. This decline was due to lower vehicle average selling prices (ASPs) and reduced vehicle deliveries, partially impacted by production challenges at its Fremont factory and Gigafactory Berlin. Despite these challenges, Tesla continues to invest heavily in its future growth, including AI infrastructure, production capacity, and new product development.
Summer often brings increased economic activity, creating a prime environment for growth investing. Investors can benefit from strategically rotating their portfolios toward sectors that thrive during the summer, such as travel and leisure, energy, and consumer discretionary. By identifying companies with strong growth prospects within these sectors, investors can capitalize on the seasonal increase in demand.
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