Constellation Brands, Inc. (STZ) shares rose more than 3% in early trading on Thursday morning after the company reported better-than-expected fourth quarter financial results. Revenue rose 8.6% to $1.77 billion – beating consensus estimates by $20 million – while net income of $1.90 per share beat consensus estimates by 16 cents per share. Operating margins were steady at 38%, but high SG&A expenses ate into the results.
The company expects to see full-year earnings per share of between $9.40 and $9.70 – versus a $9.59 consensus estimate – and free cash flow of between $1.2 billion and $1.3 billion. Despite these solid numbers, Susquehanna analysts maintained a cautious stance on Constellation Brands, saying that its share price does not reflect reinvestment costs and political risks. Margin expansion was also below the analyst's estimate for the period. (See also: Constellation Brands Stock Set to Foam on Beer Sales.)
From a technical standpoint, the stock rebounded from lower trendline support to retest prior highs near R2 resistance at $229.63. The relative strength index (RSI) has risen over the past several sessions but remains just above neutral levels at the moment. The moving average convergence divergence (MACD) remains in a bearish downtrend but could see a near-term bullish crossover if the stock continues to rally higher.
Traders should watch for a breakout from upper trendline and R2 resistance at around $229.63 to fresh highs. If the stock loses momentum, traders should watch for a move lower to retest R1 support at around $222.55 or lower trendline support near the 50-day moving average at $219.89. The favorable fourth quarter financial results and moderate RSI reading suggest that traders should maintain a bullish bias on the stock for the time being. (For more, see: Top 4 Beer Stocks for 2018.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.