Warren Buffett's Berkshire Hathaway gives Constellation Brands a vote of confidence, but many concerns remain

Alcohol producer Constellation Brands secured a nod from the the Oracle of Omaha.

A recent SEC filing disclosed Warren Buffett's Berkshire Hathaway (BRK-B) holds a 5.6 million share stake in Constellation Brands (STZ) as of the end of 2024. This makes it the sixth-largest shareholder of the beer and liquor giant. Following news of the filing, shares of the company jumped more than 5% on Tuesday.

"It's a positive for Constellation Brands ... it's a big vote of confidence," CFRA analyst Garrett Nelson said. Other investors follow Berkshire Hathaway's moves quite often "given [its] track record of success going back many decades."

Nelson said it's also an upside for Berkshire Hathaway, given its "bargain hunter" investment mentality.

"They look for deep value ... stocks that are trading at a steep discount to projected future cash flows," Nelson said. "What they see in Constellation Brands [is] a stock that has not performed well just recently."

It's likely that Berkshire has already lost money on its stake, given Constellation shares are down 23% year to date.

However, Nelson said Buffett's team has likely done extensive modeling and is seeing value over the "intermediate and longer term." Constellation's forward P/E ratio of 10.92 is its lowest in more than a decade, compared to rivals Molson Coors' (TAP) 10.19 and Anheuser-Busch's (BUD) 14.86.

"The multiples reflect skepticism regarding the near-term earnings," Nelson said. In the third quarter, the company missed Wall Street's expectations on the top and bottom lines. Beer volume grew 3.90%, while wine and spirits volumes are down 11.60%, both also missing estimates.

Chris Johnson, director at S&P Global Ratings, said investors' recent worry is largely around consumers pulling back and a different product mix being sold as a result. Offering larger value pack sizes can lead to margin erosion.

The company also slashed its fiscal 2025 outlook to organic net sales growth of 2% to 5%, lower than the previously expected range of 4% to 6%.

Portfolio Wealth Advisors president Lee Munson told Yahoo Finance that qualities Buffett likes include a "strong cash flow [and] assets that aren't going to go anywhere."

Johnson said Constellation Brands has a healthy free cash flow "well north of a billion dollars annually." And that's after the company has been spending to expand capacity to grow its beer volume, particularly in the US.