The rise of latest anti-obesity medications could lead to less alcohol consumption, impacting Club name Constellation Brands (STZ). The chance already appears to be playing out in food stocks with exposure to snacks and junk food. Nevertheless, if needed, the Mexican beer powerhouse behind Corona, Modelo and Pacifico could take motion to mitigate any demand pressures. The burden-loss advantages of diabetes drugs such Novo Nordisk ‘s (NOVO) Ozempic and Club holding Eli Lilly ‘s (LLY) Mounjaro may change into a headwind to not only alcohol makers — but additionally soda, snack food and fast-food firms. Novo Nordisk has already gotten U.S. regulatory approval for the lively ingredient in Ozempic, semaglutide, to be prescribed to combat obesity. For weight reduction, it’s marketed under the name Wegovy. The lively ingredient in Mounjaro, tirzepatide, is anticipated to get anti-obesity approval as soon as later this 12 months. STZ YTD mountain STZ year-to-date performance. We do not think Constellation Brands stock will suffer the identical fate as shares of leading snack food firms like J.M. Smucker (SJM), Conagra Brands (CAG) and General Mills (GIS), which have all dropped roughly 20% 12 months to this point. They’ve all slid to 52-week lows this month. The decline has come as additional positive trial data has been released on glucagon-like peptide 1 (GLP-1) drugs, which mimic a gut hormone that, when released, can reduce appetite. Ozempic/Wegovy and Mounjaro are GLP-1s. Currently, they’re only available as injectables. Initially used to treat type-2 diabetes, the marketplace for GLP-1s has expanded to incorporate weight reduction. In June, Eli Lilly and Novo Nordisk released trial data that showed oral GLP-1s were highly effective in reducing patients’ body weight — notable because drugmakers imagine pills may also help expand the marketplace for obesity drugs even in the event that they’re barely less effective than injectable versions. Separate trial data in August from Novo’s obesity treatment, Wegovy, found it reduced the chance of heart attacks or strokes by 20%, a finding that analysts say is prone to bolster insurance reimbursement for obesity drugs, which could in turn further adoption. The potential of Mounjaro/tirzepatide for weight reduction and other conditions has propelled Lilly stock to record high after record high into mid-September. Jim Cramer has said he expects Mounjaro to be the biggest-selling drug of all time. Correlation doesn’t all the time equal causation. Nevertheless, the timing of the discharge of trial results could have woken up investor fears that obesity drugs pose some form of risk to certain consumer brands even when the impact is a few years away. Key points The increasing popularity of latest diabetes/weight reduction drugs could curtail consumer appetite for junk food and alcohol. Constellation Brands (STZ), the Club name behind the Mexican beers Corona and Modelo, should give you the chance to weather any such headwind. Product pushes already underway at Constellation to appeal to a more health-conscious consumer are steps in the precise. Unlike the snack stocks, Constellation has been holding up, with shares up greater than 13% 12 months to this point. The stock has benefitted from the Bud Light boycott. But as those market share gains level off, it might be more in danger from the increased usage of obesity treatments. Wall Street thinks that might be a possibility, too. That potential headwind could prompt Constellation to tailor a few of its offerings. Morgan Stanley’s view Research shows patients on anti-obesity medications (AOMs) “experience significant behavioral changes … as they reduce their consumption across most food categories … in addition to sugary drinks and alcohol,” Morgan Stanley reported in an August examination of how the brand new weight-loss drugs might impact the food ecosystem. These lifestyle changes resulting from the increased use of AOMs could be seen as an “incremental headwind” within the food and beverage categories as patients reduce calorie intake, the analysts wrote. Morgan Stanley’s proprietary AlphaWise Survey of over 300 patients within the U.S. taking AOMs found that alcohol, soft/sugary drinks, and baked products are categories which are most prone to being reduce on by consumers. The survey also found 61% to 65% of patients said they’re consuming less carbonated, sugary drinks and alcohol after they begin taking the drugs. The firm calls out Constellation as considered one of the U.S.-focused beverage firms that “screen highest in our view for exposure to headwinds from increased consumer usage of AOMs.” The analysts, nevertheless, are usually not convinced the impact might be a long-term detriment. They said the impact “ought to be manageable for beverage firms over time,” especially since firms have been shifting their portfolio to health-conscious options anyway Constellation has been growing its product pipeline of lower calorie and lower alcoholic drinks like Modelo Oro light beer, Corona Non-Alcoholic and low-calorie wine brands. Morgan Stanley can also be bullish on Constellation’s “secular drivers,” including premiumization, distribution growth and growing demographics, which ought to be favorable offsets to any AOM risks. Jefferies’ view In a separate study, Jefferies surveyed 800 consumers taking GLP-1 weight reduction drugs and located changes in beer consumption was “not relevant” for a lot of across different age groups and will not be a major driver in changing alcohol consumption habits. For patients consuming alcohol while on the drug, the unintended effects were “not severe,” the analysts noted. While 1 / 4 of respondents said they drank less alcohol, almost the identical variety of respondents drank the identical amount — and greater than 10% of respondents drank more alcohol, in response to Jefferies. A majority of the people within the survey were taking AOMs for lower than six months. So, given the short timeframe, the Jefferies analysts said it’s still unknown to “what extent use of weight reduction drugs could drive changing consumer behavior.” Based on these aspects, the analysts assume there might be a possible 4% hit to alcohol consumption by 2031. Bottom line We’re cognizant that GLP-1s could change people’s habits and alcohol is potentially high up on the list of what might be consumed less. But for now, it’s too difficult to predict exactly how much habits will change and the degree to which such an impact could have on an organization like Constellation Brands. We’re talking about an impact which may be a few years away. It probably won’t be until the top of the last decade that we see widespread adoption of those drugs. Within the more immediate term, Constellation is about to report fiscal 2024 second-quarter results before the opening bell on Oct. 5. Ahead of the print, JPMorgan on Wednesday increased its price goal on STZ shares to $307, up from $276, and it views the corporate as “well positioned” to deliver strong results on strong beer channel trends, increased retail shelf space, and resilient consumer demand. The analysts are forecasting fiscal Q2 earnings-per-share of $3.35, just about consistent with the Street’s consensus estimate. JPMorgan also sees beer sales increasing 10.5%. That may be barely below the prior quarter’s 11% increase in net sales. Still, analysts point to positive sentiment across the stock given the corporate’s strong underlying fundamentals, improved governance, and activist engagement. The firm maintains its obese (buy) rating on STZ shares. Within the event that Constellation is negatively impacted by lower alcohol consumption within the longer run, the Club portfolio continues to be protected through our diversification into Eli Lilly, which we view because the winner of increased anti-obesity medication adoption. We now have yet to see the total advantages of Lilly’s obesity and diabetes drug pipeline, which we imagine sets the corporate up for long-term growth. (Jim Cramer’s Charitable Trust is long STZ, LLY. See here for a full list of the stocks.) 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Modelo Especial beer arranged within the Brooklyn Borough of Latest York, U.S., on Tuesday, Nov. 23, 2021.
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The rise of latest anti-obesity medications could lead to less alcohol consumption, impacting Club name Constellation Brands (STZ). The chance already appears to be playing out in food stocks with exposure to snacks and junk food. Nevertheless, if needed, the Mexican beer powerhouse behind Corona, Modelo and Pacifico could take motion to mitigate any demand pressures.