Critical Review: Constellation Brands (NYSE:STZ) vs. Diageo (OTCMKTS:DGEAF)

Diageo (OTCMKTS:DGEAF) and Constellation Brands (NYSE:STZ) are both consumer staples companies, but which is the superior business? We will compare the two companies based on the strength of their dividends, valuation, institutional ownership, analyst recommendations, earnings, risk and profitability.

Earnings & Valuation

This table compares Diageo and Constellation Brands”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Diageo	N/A	N/A	N/A	$0.78	30.11
Constellation Brands	$9.06 billion	2.52	$1.69 billion	$10.48	12.74

Constellation Brands has higher revenue and earnings than Diageo. Constellation Brands is trading at a lower price-to-earnings ratio than Diageo, indicating that it is currently the more affordable of the two stocks.

Insider and Institutional Ownership

33.3% of Diageo shares are held by institutional investors. Comparatively, 77.3% of Constellation Brands shares are held by institutional investors. 12.2% of Constellation Brands shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Profitability

This table compares Diageo and Constellation Brands’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Diageo	N/A	N/A	N/A
Constellation Brands	18.87%	25.58%	9.61%

Analyst Recommendations

This is a breakdown of current ratings and recommmendations for Diageo and Constellation Brands, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Diageo	0	0	0	0	0.00
Constellation Brands	2	9	11	0	2.41

Constellation Brands has a consensus price target of $167.53, suggesting a potential upside of 25.45%. Given Constellation Brands’ stronger consensus rating and higher possible upside, analysts clearly believe Constellation Brands is more favorable than Diageo.

Dividends

Diageo pays an annual dividend of $0.52 per share and has a dividend yield of 2.2%. Constellation Brands pays an annual dividend of $4.12 per share and has a dividend yield of 3.1%. Diageo pays out 66.3% of its earnings in the form of a dividend. Constellation Brands pays out 39.3% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Constellation Brands has raised its dividend for 5 consecutive years. Constellation Brands is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Constellation Brands beats Diageo on 13 of the 14 factors compared between the two stocks.

About Diageo

Diageo plc, together with its subsidiaries, engages in the production, marketing, and sale of alcoholic beverages. It offers scotch, gin, vodka, rum, raki, liqueur, wine, tequila, Chinese white spirits, cachaça, and brandy, as well as beer, including cider and flavoured malt beverages. The company also provides Canadian, Irish, American, and Indian-Made Foreign Liquor whiskies, as well as ready to drink and non-alcoholic products. It provides its products primarily under the Johnnie Walker, Guinness, Tanqueray, Baileys, Smirnoff, Captain Morgan, Crown Royal, Don Julio, Cîroc, Buchanan's, Casamigos, J&B, and Ketel One brands. The company operates in the United States, the United Kingdom, Turkey, Australia, Korea, India, Greater China, Brazil, Mexico, South Africa, Nigeria, and internationally. Diageo plc was incorporated in 1886 and is headquartered in London, the United Kingdom.

About Constellation Brands

Constellation Brands, Inc., together with its subsidiaries, produces, imports, markets, and sells beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. The company provides beer primarily under the Corona Extra, Corona Familiar, Corona Hard Seltzer, Corona Light, Corona Non-Alcoholic, Corona Premier, Corona Refresca, Modelo Especial, Modelo Chelada, Modelo Negra, Modelo Oro, Victoria, Vicky Chamoy, and Pacifico brands. It also offers wine under the Cook’s California Champagne, Kim Crawford, Meiomi, Mount Veeder, Ruffino, SIMI, My Favorite Neighbor, Robert Mondavi Winery, Schrader, and The Prisoner Wine Company brands; and spirits under the Casa Noble, Copper & Kings, High West, Mi CAMPO, Nelson’s Green Brier, and SVEDKA brands. The company provides its products to wholesale distributors, retailers, on-premise locations, and state alcohol beverage control agencies. Constellation Brands, Inc. was founded in 1945 and is headquartered in Victor, New York.