Berkshire has been a big buyer of alcoholic beverage company Constellation Brands. Its main product are Mexican beers like Corona and Modelo which contribute 80% of revenue. Wine and spirits contribute the remaining 20%.

Consumption and with that the profitability of beer companies have been on a multi-year decline.

THE 5-year average ROE for STZ is 8.2%, ROTC is 8.5%. For competitor BUD the numbers are in the 5 - 5.5% range.

Liquor companies like Diageo and Brown Forman have ROEs in the mid 30s.

Likewise non alcoholic beverage companies like Coke and Pepsi sport even higher returns on capital.

Projected 3-5 year EPS growth for STZ is only 2.4%, so that too doesn’t explain the attraction.

At a FWD PE of 15 and dividend yield of 2.2%, valuation is reasonable but not dirt cheap.

So what attracts Buffett (assuming it is his pick) to STZ? Is high return on equity or total capital not important to Buffett in selecting companies to buy?

My data is from Seeking Alpha.

Berkshire Hathaway FAQ

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