The alcohol industry has enjoyed stability over the past several decades as demand for alcohol has remained inelastic regardless of consumers’ economic situations.

Unfortunately, this trend seems to be shifting. Americans are getting rid of alcoholic drinks in favor of healthier beverages altogether.

Beer, long considered the preferred beverage for 47% of U.S. drinkers, is now favored by just 34% of consumers. Meanwhile, the number of Americans who consume alcohol has fallen to 54% from a previous high of 67% in 2022.

This shift in behavior has hurt and continues to hurt Constellation Brands (STZ).

The company is known for being the distributor of popular beer brands Modelo and Corona.

Modelo was the top-selling beer in the U.S. from 2023 until it was overtaken by Michelob Ultra in 2025. Even though Modelo lost the top spot, it, along with Corona, continues to rank among the most popular beer brands in the U.S.

Aside from its beer business, Constellation operates wine brands such as Robert Mondavi Winery and spirits brands like Casa Noble Tequila and High West Whiskey.

Unfortunately, Constellation has continued to be negatively impacted by shifts in consumer behavior. To make things worse, consumers have been under pressure in the past year, leading to weaker sentiment and spending.

These trends made themselves apparent in the company’s most recent quarter.

A week ago, Constellation announced results for the fourth quarter of its 2026 fiscal year. The company’s revenues slid 11% to $1.92 billion. Meanwhile, even though beer sales went up to $1.73 billion, wine and spirits sales slid 58% to just $194 million.

Despite quarterly revenues managing to beat Wall Street expectations of $1.88 billion, the company withdrew its outlook for fiscal year 2028 due to subdued demand for beer, wine, and spirits and continued economic pressure on U.S. consumers.

As for fiscal year 2027, Constellation’s chief executive said that they “expect consumers will continue to navigate a shifting macroeconomic environment.”

This cautionary outlook reflects Constellation’s struggles in recent years. The company’s returns have been on a steady decline since peaking in 2022.

From a peak of 35% in 2022, the company’s Uniform return on assets (“ROA”) slid to 15% last year.

The market isn’t expecting for things to get any better for Constellation. And we can see this through Valens’ Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

The market expects the company’s returns to level out at 16% by 2030, well below its 2022 peak and just slightly higher than the 15% it managed last year.

Given recent consumer pressures and shifting behavior towards alcohol, these valuations appear warranted.

In light of this, investors should take a cautionary approach to this stock and other players in the alcohol industry.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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