Warren Buffett’s Berkshire Hathaway has invested $1.24 billion in Constellation Brands, the company behind popular Mexican beer brands such as Corona, Modelo, and Pacifico. This investment, disclosed in a Form 13-F regulatory filing released on Friday, now accounts for 0.5% of Berkshire’s portfolio, indicating Buffett’s confidence in the long-term prospects of the alcoholic beverage market.
Constellation Brands, a Fortune 500 company, has seen its stock price plummet by 26% since the beginning of the year. Despite this, Buffett appears to have been drawn to the company’s robust portfolio of premium Mexican beers, which have consistently outperformed the broader beer market.
In 2023, Modelo became the top-selling beer in the U.S., surpassing Bud Light following backlash against its partnership with transgender influencer Dylan Mulvaney.
Citi’s lead beverages analyst, Filippo Falorni, regards Buffett’s investment as a textbook example of value investing. He stated, “The stock has been very weak, mainly due to concerns about tariffs on its Mexican beer imports. However, looking past the near-term issue of tariffs, the long-term business remains very attractive with growth in the fastest-growing part of the beer category, favorable demographic trends with exposure to the faster-growing Hispanic population in the U.S., and large distribution opportunities for the Corona, Modelo, and Pacifico brands.”
Despite requests for comments, Constellation Brands did not respond.
Buffett’s acquisition of 5.6 million shares in Constellation Brands suggests he sees numerous growth opportunities in the beverage market. The trend towards premiumization in the alcohol industry—convincing consumers to pay more for higher-quality brands—along with Constellation’s focus on expanding its distribution network and leveraging the growing Hispanic population in the U.S., presents significant upside potential.
Falorni added, “Constellation imports 100% of its beer business from Mexico, where beer is brewed in two facilities in Nava and Obregón, with a third facility under construction in Veracruz.”
However, broader economic trends and market conditions could impact on the success of Buffett’s investment. The threat of tariffs on Mexican imports from the Trump administration poses a significant challenge, with Falorni estimating a potential 28% negative impact on earnings per share. Conversely, if tariffs do not materialize or are less severe than anticipated, Constellation could be significantly undervalued at current levels.
Additionally, changing consumer preferences toward healthier alternatives and the ongoing recovery of the hospitality industry post-pandemic could influence performance.
Despite these challenges, Buffett’s investment in Constellation Brands reflects his renowned long-term perspective and his ability to look beyond short-term market fluctuations. As Falorni noted, “Warren Buffett is looking at the value of the business in the long term and believes the stock is undervalued due to those external concerns.”
Source: Fortune
