In Q2, Warren Buffett added nearly 1.4 million shares of alcoholic beverage giant Constellation Brands (NYSE:STZ) to Berkshire Hathaway’s already sizeable stake, bringing the total value of its STZ position to about $1.9 billion.
Like many other alcohol makers, however, Constellation is currently in a slump due to a significant pullback in alcohol consumption. Today, let’s take a look at some of the reasons Buffett may have bought Constellation Brands stock and whether STZ could still be a good buy for retail investors.
Constellation’s Growing Brand Moat
From years of investing in high-profile consumer businesses, Warren Buffett is acutely aware of the power of brand advantages. One of the major factors that may have first attracted him to Constellation is the fact that the business has several strong brands under its portfolio.
Most notable are beer brands Corona and Modelo, both of which have experienced surging popularity in recent years. Constellation also owns Kim Crawford wines, a highly popular sauvignon blanc brand. While Constellation’s presence in the liquor market is a bit thinner, it has added whiskey brand High West and tequila brands Mi Campo and Casa Noble to its portfolio.
Constellation’s business model relies heavily on acquiring and growing existing brands, allowing it to put its resources and operational know-how to work to build value within the businesses it acquires. Although acquisitions have been a bit slow in the past few years, this model has allowed Constellation to build a strong, diversified portfolio that spans the alcohol industry as a whole.
The Long-term Outlook for Alcohol Sales
Right now, many beer, wine and spirits businesses are being pressured by shifting consumption trends. A recent Gallup poll found that health concerns have driven the percentage of Americans who consume alcohol down to 54 percent, a record low in the 90 years of data at Gallup’s disposal. Young adults have been at the forefront of this trend, with only 50 percent self-reporting alcohol consumption.
In the long run, however, history suggests that alcohol sales will eventually recover. A similar dip in consumption patterns, for instance, occurred in 1989 when only 56 percent of the population reported drinking alcohol. By the mid-90s, however, that trend had reversed to bring consumption rates back above 60 percent, where they stayed throughout the 2000s and 2010s.
It’s also worth noting that trends in health perceptions may only be part of the story on the downturn in alcohol consumption. Broader economic factors, notably rising costs of living and the additional costs added by higher tariffs, both appear to be discouraging consumers from spending on alcoholic drinks. While health concerns may be more entrenched, Constellation sees these economic factors as being largely cyclical, further suggesting that a rebound could eventually occur.
Indeed, Constellation could even emerge from the present climate as a stronger business. Constellation enjoys a stronger market share among Gen Z than the overall industry, suggesting that it could be uniquely positioned to capture the half of younger consumers who still choose to drink.
Moreover, the current downturn could provide Constellation with new brand acquisition targets at lower prices, potentially allowing it to renew its acquisition activity after a few years of relatively few new additions to its portfolio.
Constellation’s Current Performance
Unsurprisingly, the difficulties in the alcohol industry have shown up in Constellation’s performance. In Q2 of its 2026 fiscal year, for instance, Constellation reported a decline of 15 percent in its net sales to $2.5 billion. Comparable net income, meanwhile, fell 19 percent to $638 million.
Even with the challenges the industry is facing, however, Constellation has managed to remain basically profitable. On a trailing 12-month basis, Constellation’s net margin has held at 13.2 percent. Another of Buffett’s favorite metrics, return on equity, has been even stronger at 16.4 percent.
Another bright spot for Constellation is the fact that it has remained strongly cash flow generative. In the first half of the year, the business produced operating cash flows of $1.5 billion and free cash flows of $1.1 billion. This once again shows Constellation’s overall strength as a business, particularly considering the problems that the alcohol industry overall is experiencing.
Is Constellation Brands Undervalued?
Constellation Brands presents a rare opportunity for investors to buy a stock Warren Buffett has added to the Berkshire portfolio significantly below his cost basis. With an average price of $205, Berkshire is sitting on a loss of roughly 31 percent in its STZ position. Buffett, however, has kept buying, indicating that he and the Berkshire team likely still see value in the embattled alcohol major.
This view seems reasonable when one looks at Constellation’s valuation metrics. Despite its strong market position, shares of the business are trading for just 20.5 times trailing 12-month earnings and 13.6 times operating cash flow.
Buffett also isn’t the only observer who believes that Constellation is trading below its intrinsic value. The consensus price target for STZ among analysts is $172.61, implying a gain of almost 23 percent against the most recent price of $140.41. Of the 21 analysts covering the stock, 13 have also rated it as a buy.
So, Why Did Buffett Buy Constellation Brands?
All told, Constellation Brands appears to be one of Buffett’s classic investments in a business that is experiencing temporary headwinds but which also has strong long-term growth potential. Constellation is riding out the current industry downturn better than most of its peers, and it’s likely that it will rebound significantly if and when alcohol sales recover as a whole.
Constellation also has strong brand power and a wide resulting moat, both of which are known Buffett favorites. The opportunity to buy such a business at a steep discount also seems to have encouraged Berkshire to keep buying more shares, as evidenced by the addition to the STZ position in Q2.
While waiting for a recovery, both Buffett and other shareholders can benefit from Constellation’s dividend and share buyback program. At the moment, shares of STZ are yielding 2.9 percent, far outpacing the S&P 500 average.
Constellation also bought back over $600 million worth of its own shares through the first half of the fiscal year as part of a broader $4 billion buyback authorization. Management’s zeal for returning cash to shareholders and buying back its own shares may provide some additional stability and reassure shareholders through the business’s current difficulties.
At the moment, Constellation Brands looks like it could still be a decent buy for investors willing to ride out some near-term headwinds in exchange for a chance at strong long-term returns. STZ may not bounce back overnight, but its performance, market position and attractive valuation could form a strong argument for buying and holding STZ.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.