Constellation Brands (STZ) is back in focus after its latest earnings release, where revenue and earnings came in below expectations but full-year guidance was reaffirmed, prompting an initial share drop followed by a recovery.

At a share price of $155.25, Constellation Brands has seen short term momentum build, with a 1 month share price return of 5.99% and a 90 day return of 8.08%. However, its 1 year total shareholder return of 7.71% and 3 year total shareholder return of 26.71% show longer term holders still sit on losses, which helps explain why the latest earnings miss and reaffirmed guidance triggered an initial selloff before sentiment steadied.

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With earnings expectations missed, full year guidance intact, and the share price still below some analyst targets, the key question now is simple: is Constellation Brands undervalued, or is the market already pricing in whatever growth comes next?

Most Popular Narrative: 9.5% Undervalued

Constellation Brands' widely followed narrative points to a fair value of $171.50 compared with the last close at $155.25, setting up a valuation story built around measured growth, margin expansion and cash generation.

The company plans to generate approximately $9 billion in operating cash flow and $6 billion in free cash flow from fiscal '26 to fiscal '28. This robust cash flow will support investment in growth initiatives, primarily the modular development of their third brewery in Veracruz and additions to existing facilities in Mexico, potentially enhancing revenue.

Want to see how those cash flow targets feed into the $171.50 fair value? The narrative leans on steady top line progress, meaningfully higher margins and a future earnings multiple that assumes investors stay confident in Constellation Brands' earnings quality.

Result: Fair Value of $171.50 (UNDERVALUED)

However, this depends on beer volumes and margins remaining stable, while tariffs, inflation and pressure on key Hispanic consumers could still disrupt that recovery story.

Another View: Earnings Multiple Sends A Different Signal

The popular narrative leans on a fair value of $171.50, but the current P/E of 24.3x looks rich compared with the global beverage industry at 16.7x, peers at 17.6x and a fair ratio of 21.8x. This points to valuation risk if enthusiasm fades. So which signal do you trust more?

Next Steps

With mixed signals on valuation and sentiment in the spotlight, it helps to look at the full picture yourself and decide quickly where you stand. You can start with the 4 key rewards and 2 important warning signs.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.