People are spending more time at home than ever, which means people are spending more time with their families than ever…which means we all need a drink. Over the last 25 years, the average consumption of alcohol has steady crept up in the United States, and wine and liquor consumption have been the driving force behind that trend. While per capita beer consumption has fallen, the average American consumes an additional .2 gallons more ethanol from spirits and an additional .15 gallons from wine today than she did in the 1990s. This is music to the ears of large, alcohol producers and distributors like Brown-Forman (BF.A), Diageo (DEO), and Constellation Brands (STZ). With the exception of Diageo, shares in these conglomerates are up over the last 6 months as quarantine measures entice consumers to pour another.
At the front of the pack is Brown Forman, one of the largest American-owned organizations in the wine and spirits business. Headquartered in Louisville, KY, Brown Forman is known for producing products like Jack Daniel’s, Old Forester, Woodford Reserve, GlenDronach, Korbel, Finlandia, and Chambord. Notably, the strength of Brown-Forman’s whiskey portfolio dwarfs its wine offerings, highlighting a relative lack of diversity and strong reliance on spirits consumption. In 2019, Brown Forman generated $1.1 billion in EBITDA on $3.3 billion in revenues, representing a ~33% EBITDA margin.
Next is Constellation Brands, a New York-based Fortune 500 conglomerate that produces and markets wine and spirit as well as beer. With over 100 brands in its portfolio, Constellation Brands owns many recognizable names like Robert Mondavi, Kim Crawford, Meiomi, Corona, Pacifico, Svedka, High West, and Belle Meade Bourbon among others. In contrast to Brown Forman, Constellation Brands’ portfolio is heavily weighted towards the wine market, although its liquor and beer offerings serve a more fleshed-out diversification function for the company. In 2019, Constellation Brands generated $3.2 billion in EBITDA on $8.3 billion in revenues, which is roughly triple the EBTIDA generated by Brown-Forman in the same period and at a higher margin (~38%).
Lastly, and in last place over the last six months is the UK-based Diageo. Diageo produces spirits in over 140 locations for sale in more than 180 countries worldwide, making it the most international organization of the three companies in our comparison. It is also the largest of our three alcohol stocks, generating $5.0 billion in EBITDA on $14.8 billion in revenues in 2019. Diageo also boasts the largest number of high-profile brands out of the companies discussed here. Diageo’s portfolio includes brands like Cîroc, Guinness, Bailey’s, Smirnoff, Ketel One, Crown Royal, J&B, Tanqueray, Captain Morgan, and Don Julio. It also produces a wide array of scotch whiskies, from the ubiquitous Johnnie Walker, to favorites like Lagavulin, Oban, Talisker, and Caol Ila. Similarly, to Brown-Forman, Diageo is relatively non-diversified, looking only to its Guinness, Harp, and Kilkenny brands for most of its non-liquor sales.
Charting the performance of shares in these three companies since mid-2012, when Brown-Forman began trading under its current ticker, shows that while Constellation Brands performance has been middling over the last six months, the long-term view is quite different:
Constellation Brands is up over 500% over this time period compared to Brown-Forman’s ~175% and Diageo’s paltry ~25%. Constellation Brands strong performance over this time period correlates with the company’s acquisition of the Corona beer brand in 2012 and refocusing its portfolio on the high-end wine market. The combination of a strong, historical share price trajectory, premium portfolio focus, and recent investments in the recreational cannabis grower Canopy Growth Corporation (CGC) make Constellation Brands a very interesting asset for investors looking to enter the space.