Constellation Brands (STZ), which sells Modelo and Corona beer, is a strong free cash flow producer. However, STZ stock is well off its highs and has low valuation metrics. Should investors buy it here? This article will discuss ways to play STZ.

STZ closed at $195.62 on Friday, May 16, well off its 6-month peak of $244.31 on Dec. 9, 2024. The Barchart 6-month chart below shows that it's up from its lows as well.

I discussed Constellation Brands' free cash flow performance in an April 13 Barchart article ("Constellation Brands Produces Strong FCF - STZ Stock Looks Cheap Here").

It was at $185.30 a month ago, so it's risen by +5.5% since then. But does it have further to go? 

Valuing STZ Stock

There are three ways to easily value STZ stock, using free cash flow (FCF) estimates, earnings estimates, and its dividend yield history.

Free Cash Flow Yield Method. Management guided for free cash flow (FCF) for its fiscal year ending Feb. 2026 in its latest April 9 earnings release. After several divestitures, Constellation's FCF outlook is between $1.5 billion and $1.6 billion in FCF for 2025.

Therefore, assuming the market will give the stock a 4.2% FCF yield (i.e., twice its present 2.09% dividend yield), the market value could be worth:

  $1.55 billion est. FCF (midpoint of guidance) / 0.042 = $36.91 billion

That is about +6% higher than its present market value of $34.83 billion at $195.62 p/share.

In other words, STZ stock is worth +6% more or $207.36 per share, based on the midpoint of management's guidance.

That could take a year to occur, assuming management's guidance on free cash flow comes to pass.

Forward Price/Earnings Method. Analysts surveyed by Seeking Alpha (16 analysts) have an average earnings per share (EPS) estimate of $12.71 for the year to Feb. 2026 and $13.79 for FY 2027. That means it will be on a forward EPS next 12-month (NTM) run rate of about $13.25 per share. Its forward price/earnings (P/E) will be:

  $195.62 price today/ $13.25 NTM EPS = 14.76x

This is lower than its average 5-year forward P/E of 20.51x, according to Seeking Alpha, and 18.89x, according to Morningstar. So, using the average of these two (19.7x):

  $13.25 NTM EPS x 19.7x = $261.03 target price.

Moreover, using a more conservative multiple of 18x, STZ stock is worth:

   $13.25 x 18 = $238.50 target price

That is still +21.9% higher than its price today.

Dividend Yield Method. Constellation pays $1.02 quarterly ($4.08 annually), so its dividend yield today is 2.08567% (i.e., $4.08/$195.62). However, Yahoo! Finance reports that its average yield over the last 5 years has been 1.47%, and Morningstar reports its 5-year average yield has been 1.43%.

So, using an average 1.45% yield, here is what STZ stock is worth if it were to rise to this average yield:

  $4.08 dividend / 0.0145 = $277.55 target

This is 41.88% higher than today's price.

Summary Value. The price targets based on three methods are: 

   FCF Yield ………. $207.36   +6%

   Forward P/E ….  $238.50  +21.9%

   Div Yield ……….. $277.55  +41.9%

Average ………….   $241.14 per share, +23.3%

The bottom line is that based on these three methods, the stock is still worth more than 23% over its current price.

How to Play STZ

Does that mean STZ stock will jump from here? Maybe, but conservative investors might want to wait to buy in at a lower price. For one, it might be worthwhile until fiscal Q1 earnings are released (for the quarter ending May 30) are released.

After all, management is likely to update its free cash flow guidance for the full year, especially now that the tariff regime has made some impact on its sales.

OTM Short Put Play. More risk-averse investors can set a lower buy-in target, and get paid while waiting, by shorting out-of-the-money (OTM) puts.

For example, the June 13 expiration shows that puts with a 5% lower exercise price (i.e., $185.00) have a midpoint premium of $1.73. That means short-sellers of these put contracts can make an immediate yield of almost 1.0% (i.e., $1.73/$185.00 = 0.00935 = 0.935%).

This means that an investor who secures $18,500 in cash with their brokerage firm can “Sell to Open” 1 put at $185.00, and the account will receive $173.00. That works out to a yield of 0.93% for the next month.

Note that there is low risk here (the delta ratio is just 21%). This implies just 1 in 4 odds (i.e., 1/5 chance) that STZ will fall to $185.00 over the next month. 

Moreover, even if that happens, the breakeven point is lower at $185.00 - $1.73, or $183.27. That is 6.3% below Friday's closing price.

However, if STZ rises, short-put players can't make more than the short-put yield, with none of the upside in STZ stock.

ITM Call Options. Some investors may want to buy deep in-the-money (ITM) call options in long-dated expiration periods to gain upside in STZ stock. This allows the investor to invest less money (total capital) for the same potential upside.

Look at the Oct. 17, 2025, expiration call option chain. It shows that the $180 strike price calls trade for $26.00 at the midpoint. In other words, to buy 100 shares, an investor can save a lot of money. 

For example, at today's price, 100 shares cost $19,625 (100 x $195.62). However, for a call option at $180.00 expiring in 5 months, the cost is just $2,600 (i.e., 100 x $26). This is because each option contract represents 100 shares. (Note that the delta option is high at 0.69865, or about $70 upside for every $1 increase in STZ).

Here is how that might work out. For example, if STZ rises to the target price of $241.00 by Oct. 17, 2025, the return is +23.3% (see above).

But the call option will have a value of $61 (i.e., $241-$180 strike price). So, the investor's return is:

   $61-$26 cost = $35, or $3,500 profit

   $3500 profit / $2600 cost = 135% ROI

That is 5.8x the 23.3% long-stock return.

Moreover, OTM short-put investors who repeat the monthly short-put play for 5 months can potentially reduce the investment cost by $865 (i.e., $1.73 income x 5mo  x 100). That lowers the actual investment cost to just $1,735 for 100 shares, or $17.35 per contract. This means the investor's breakeven is 

  $180 +$17.35 = $197..35.

That is less than 1% over today's cost of $195.62.

The bottom line is that investors can take advantage of STZ's upside by selling short out-of-the-money puts and/or buying in-the-money calls.

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.