Constellation Brands, Inc.

STZ Details

New Distribution Deal: Constellation Brand Inc. (NYSE: STZ) is an international beverage alcohol company, manufacturing and selling beer, wine and spirits under various brands. The key brands owned by the company are Corona, Casa Modelo, and Pacifico. STZ also owns 38.60% of Canopy Growth Corp, which operates in the cannabis segment. As of 9^th March 2021, the company’s market capitalization stood at ~$44.03 billion. STZ has recently announced expanded distribution responsibilities to Southern Glazer’s Wine and Spirits (SGWS), which will be handling an approximately 70% of STZ’s brand portfolio in the United States effective 1^st April 2021. SGWS is a proven brand builder with a strong national footprint, an innovator in digital commerce and a leader in the luxury category. This strategic alignment with SGWS will help in accelerating the growth of the Company’s high-end wine & spirit category.

Upgraded Roles for Top Executives: The Company continues to invest in broadening the knowledge, perspective and capabilities of its leaders. Commensurately, it announced new and expanded responsibilities for two of its leaders - Jim Sabia and Mallika Monteiro - effective 1^st March 2021, to steer the company going forward. Jim, who had been serving as Constellation’s Executive Vice President and Chief Marketing Officer since 2018, assumed the role of Executive Vice President and Managing Director, Beer division. Mallika Monteiro took charge as Executive Vice President and Chief Growth, Strategy and Digital officer leading the company’s media initiatives. These are the added responsibilities to her existing role for leading the company’s growth and strategy functions.

Results: In the nine months ended 30^th November 2020 (Q3FY20), the company reported net sales of $6,661.9 million from $6,440.6 million in the year-ago period. Consequently, profit during the period increased to $1,641.2 million from ($387.6 million) in the year-ago period. The company had reported 28.3% and 10% net sales growth for beer and wine & spirit segments, respectively.

Key Risks: The company is deriving a significant portion of its business from the sale of its Mexican beer brands in the US. These beers are being manufactured at two breweries located at Nava and Obregon in Mexico. Disruption of operations at these sites can significantly impact the company’s financials.

Outlook: Management has guided the Beer segment to deliver 7-9% and 8-10% growth in net sales and operating income, respectively, in FY21. The segment contributed 70.5% to consolidated net sales and 42.3% to operating income for the nine months ended 30^th November 2020 (Q3FY20). On account of restructuring of the Wine & Spirit segment, the company estimates a 9-11% and 16-18% drop in net sales and operating income, respectively, from this segment. Wine & Spirit contributed 29.5% and 25.9% to net sales and operating income, respectively.

Business Segment Medium-Term Growth Vision (Source: Company Presentation)

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: On a YTD basis, STZ has delivered a return of ~3.7% in 2021. The stock currently trades towards the higher band of its 52-week range of $104.28-$242.62. On the technical analysis front, the stock has a support level of ~$209.63 and a resistance level of ~$230.62. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price of an upside of low single-digit (in percentage terms). We believe that the company might trade at a slight discount to its peer median, considering the guidance related to the revenue and operating income from Wine & Spirit segment and associated key risks. Considering the company’s decent operational and financial performance in the quarter gone by, FY21 outlook, and valuation, we give a “Hold” rating on the stock at the closing price of $227.10, up 2.93% as of 9^th March 2021.

STZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Akoustis Technologies, Inc.

AKTS Details

Credible History of Execution: Akoustis Technologies, Inc. (NASDAQ: AKTS) is a developer of single-crystal bulk-acoustic-wave (BAW) radio frequency (RF) filters. The company has a market capitalization of $601.41 million as on 09 March 2021. It completed an equity offering (non-brokered registered direct offering - RDO) in February 2021 for $21.5 million for general corporate purposes, including funding capacity expansion. AKTS is transitioning successfully from five years of development to commercialization and has mitigated manufacturing risk by moving from relying on an external foundry for producing its products to setting up its first in-house line at Canandaigua, New York for its patented XBAW RF filters. It is expanding its line capacity to align with high-volume commercial markets.

Source: Company Reports

Rapidly Expanding Addressable Market: AKTS’ filters have characteristics desired by mobile phone manufacturers, mainly in bands above 2GHz. This segment of the radio frequency front end (RFFE) market is witnessing rapid growth – the addressable size is estimated to grow to $6.9bn in 2024 from $4.3bn in 2019. The growth is driven by higher demand for mobile data warranting higher frequency spectrum (5G and Wi-Fi). The product offerings also cater to a segment of defence markets.

Ground-breaking Technology to capture market share: The company endeavours to disrupt the premium BAW filter market currently serviced largely by a duopoly (Broadcom and Qorvo) offering polycrystalline technology. AKTS’ single crystal filters provide broader bandwidth, lower insertion loss, smaller size and higher speed.

Q2FY21 Results: Robust results are evidence of increasing penetration of the company’s proprietary technology into the vast 5G mobile and network infrastructure, Wi-Fi, and defence markets. Revenue in the last quarter increased 153% YoY to $1.3 million. Many important developments on business development and customer engagement fronts were also registered during the quarter.

Key Risks: The company manufactures primarily out of one facility in Canandaigua, NY. An interruption of normal operations at the facility due to unforeseen events (such as a pandemic) could adversely affect business. In an industry with a technological core, retention of key technical personnel is also necessary for maintenance and growth of the company. Also, technological changes can erode competitive edge, though entry barriers (knowhow, capital and development lead times) are high.

Outlook: The management expects continued top-line growth, moving forward and given the growing demand and backlog, it announced doubling its manufacturing capacity by end of 2021 on top of the previously announced 500% capacity expansion expected to be completed by June 2021.

Stock Recommendation: The stock is up ~4.09% on the YTD basis and is currently trading above the average of its 52 weeks’ range of $3.76-19.15. On the technical analysis front, the stock has a support level of ~$11.28 and a resistance level of ~$13.08. Considering the strong growth impetus, high gross margins, stickiness of key customers, and key risks, we recommend a “Speculative Buy” rating on the stock at the closing price of $12.73, up by 9.08% as on 09 March 2021.

AKTS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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