Critical Review: Constellation Brands (NYSE:STZ) versus Diageo (OTCMKTS:DGEAF)

Constellation Brands (NYSE:STZ) and Diageo (OTCMKTS:DGEAF) are both consumer staples companies, but which is the superior business? We will compare the two companies based on the strength of their risk, profitability, dividends, institutional ownership, valuation, earnings and analyst recommendations.

Analyst Recommendations

This is a breakdown of recent ratings and price targets for Constellation Brands and Diageo, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Constellation Brands	2	9	11	0	2.41
Diageo	0	0	0	0	0.00

Constellation Brands presently has a consensus target price of $167.53, indicating a potential upside of 23.71%. Given Constellation Brands’ stronger consensus rating and higher possible upside, equities analysts clearly believe Constellation Brands is more favorable than Diageo.

Valuation & Earnings

This table compares Constellation Brands and Diageo”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Constellation Brands	$9.76 billion	2.37	$1.69 billion	$10.48	12.92
Diageo	N/A	N/A	N/A	$0.78	30.19

Constellation Brands has higher revenue and earnings than Diageo. Constellation Brands is trading at a lower price-to-earnings ratio than Diageo, indicating that it is currently the more affordable of the two stocks.

Insider & Institutional Ownership

77.3% of Constellation Brands shares are held by institutional investors. Comparatively, 33.3% of Diageo shares are held by institutional investors. 12.2% of Constellation Brands shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Dividends

Constellation Brands pays an annual dividend of $4.12 per share and has a dividend yield of 3.0%. Diageo pays an annual dividend of $0.52 per share and has a dividend yield of 2.2%. Constellation Brands pays out 39.3% of its earnings in the form of a dividend. Diageo pays out 66.3% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Constellation Brands has raised its dividend for 5 consecutive years. Constellation Brands is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Constellation Brands and Diageo’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Constellation Brands	18.87%	25.58%	9.61%
Diageo	N/A	N/A	N/A

Summary

Constellation Brands beats Diageo on 13 of the 14 factors compared between the two stocks.

About Constellation Brands

Constellation Brands, Inc., together with its subsidiaries, produces, imports, markets, and sells beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. The company provides beer primarily under the Corona Extra, Corona Familiar, Corona Hard Seltzer, Corona Light, Corona Non-Alcoholic, Corona Premier, Corona Refresca, Modelo Especial, Modelo Chelada, Modelo Negra, Modelo Oro, Victoria, Vicky Chamoy, and Pacifico brands. It also offers wine under the Cook’s California Champagne, Kim Crawford, Meiomi, Mount Veeder, Ruffino, SIMI, My Favorite Neighbor, Robert Mondavi Winery, Schrader, and The Prisoner Wine Company brands; and spirits under the Casa Noble, Copper & Kings, High West, Mi CAMPO, Nelson’s Green Brier, and SVEDKA brands. The company provides its products to wholesale distributors, retailers, on-premise locations, and state alcohol beverage control agencies. Constellation Brands, Inc. was founded in 1945 and is headquartered in Victor, New York.

About Diageo

Diageo plc, together with its subsidiaries, engages in the production, marketing, and sale of alcoholic beverages. It offers scotch, gin, vodka, rum, raki, liqueur, wine, tequila, Chinese white spirits, cachaça, and brandy, as well as beer, including cider and flavoured malt beverages. The company also provides Canadian, Irish, American, and Indian-Made Foreign Liquor whiskies, as well as ready to drink and non-alcoholic products. It provides its products primarily under the Johnnie Walker, Guinness, Tanqueray, Baileys, Smirnoff, Captain Morgan, Crown Royal, Don Julio, Cîroc, Buchanan's, Casamigos, J&B, and Ketel One brands. The company operates in the United States, the United Kingdom, Turkey, Australia, Korea, India, Greater China, Brazil, Mexico, South Africa, Nigeria, and internationally. Diageo plc was incorporated in 1886 and is headquartered in London, the United Kingdom.