Important disclosures appear on the last page of this report.

1

April 11th, 2019 Recommendation: Hold

Krause Fund Research Spring 2019 Consumer Staples Analysts Garret Culligan Treye Spencer garret-culligan@uiowa.edu william-spencer@uiowa.edu

Justin Zeimet Alexander Egan zmt@uiowa.edu alexander-egan@uiowa.edu

Company Overview

Constellation Brands, Inc. (STZ) is a total beverage alcohol (TBA) conglomerate with over 95% of their business in the United States. STZ’s portfolio consists of beer labels such as Ballast Point, Corona, and Modelo, wines such as Kim Crawford and Meiomi, and spirits such as SVEDKA Vodka and High West Whiskey. STZ prides themselves on offering high-end beer and premium wine & spirits.2

Stock Performance Highlights 52-Week Range $150.37 - $192.52 Beta 0.672 Share Highlights Market Capitalization $36.2B Shares Outstanding 189.9M EPS $18.26 P/E Ratio 17.7 Dividend Yield 1.55% Dividend Payout Ratio 16.3% Company Performance Ratios ROA 11.75% ROE 26.77% Net Profit Margin 38.68% Operating Margin 27.15% Financial Ratios Current Ratio 1.16 Debt to Equity .37 Total Asset Turnover .30

Current Price: $191.17 Target Price: $210-230 STZ: A Star in the Making

We recommend a HOLD rating for Constellation Brands because of the company’s defensiveness against market volatility and the potential upsides of both their high-end alcohol labels and their large stake Canopy Growth Corporation.

Drivers of Thesis • STZ has an established position in a growing

Mexican beer market • A defensive beta of 0.672 provides STZ with a

cushion during times of economic downturn • We project an average growth rate of 4.3% in

beer and wine & spirits net sales over the next 5 years, outpacing inflation

• STZ’s established position in the emerging cannabis market provides substantial upside

Risk of Thesis • Hypersensitivity related to increase in cost of

capital and inflation • Uncertainty surrounding cannabis legalization

and regulation in US • Consumer Trends are shifting away from beer

One Year Stock Performance

Source: Factset29

Constellation Brands, Inc. (STZ)

Important disclosures appear on the last page of this report.

2 Economic Outlook Real GDP Growth Real GDP growth measures the growth or tightening of the economy on an inflation adjusted basis, which makes it one of the most important indicators of the economy’s health. Over the past few years real GDP growth has been consistently positive with steady quarter over quarter growth. Since, 2017 this growth has increased at a much more rapid pace, culminating in 2018 where Q-o-Q growth reached 4.2% during the second quarter, and 3.4% during the third quarter. Despite this rapid growth, we caution that this trend is not likely to continue. The market is nearing the peak of its bull cycle, as the recent trade wars and slowed growth in China and Europe indicate global markets are beginning to constrict. We believe this will lead 2019 real GDP growth will cool to a 1.8-2.2% annual growth, with 2020 following a similar downward trend.35

Fortunately, the consumer staples industry is very stable during market constriction and is not impacted as much by a market correction, or even recession as most industries. In fact, the consumer staples sector has outperformed the S&P 500 during the last three recessionary periods.34

Source: US Bureau of Labor Statistics33

This is further evidenced by Constellation Brands .672 beta, which demonstrates the company’s lesser relation to overall market trends. Established and affordable brands like Corona and Modelo have become American staples and as such sales should not feel a drastic impact in from market tightening. Where a slowed economy becomes a concern is with STZ’s increased investment in higher end premium alcohol products whose sales are much more likely to see a negative impact.2

Inflation For the consumer staples industry rising inflation is of especially great concern. Due to the low margin nature of the industries products the cost of inflation is passed on increasingly more to consumers, thus leading to a decrease in demand and earnings. This is a large concern for STZ, whose majority of earnings from operations comes from low margin, high volume, beer sales.2

Inflation had been on a steady decline over the past 6 months, reaching an over 2 year low of 1.5% in March. Unfortunately, an alarming rise to 1.9% as of last month has led to speculation of potential future Fed involvement. If the Fed’s target inflation rate of 2% is surpassed they may have to raise interest rates. This would have a negative effect on consumer spending as well as increase company’s cost of capital. A large increase in cost of capital would lead all future earnings to be discounted at higher interest rates, causing values to plummet.36

Consumer Price Index The CPI measures the impact of inflation, and how it is passed along to the consumer. This indicates the effect of prices and inflation on the market place. As the CPI increases, consumers react to the loss of purchasing power by decreasing demand. This is very important to consumer staples companies as the increase in consumer inflation puts additional pressure on their already low margins.33

We believe that overall CPI will maintain a steady 1.8% increase as the US Bureau of Labor Statistics believes. This should have no significant impact on the consumer staples sector in the near future, but this index still requires attention.33

Important disclosures appear on the last page of this report.

3 Unemployment Rate and Wages The US is currently experiencing record lows for unemployment with the U.S. U-3 unemployment rate currently at 3.8% as of last reported. If a strong job market continues the inverse relationship between the unemployment rate and inflation is increasingly likely to take hold, further straining the low margin sales that the consumer staples industry is built on.31

Source: St. Louis Federal Reserve Geopolitical The current U.S. political regime has made it quite clear over the past two years that it is not afraid to involve the country in economic war in order to renegotiate current international trade practices. While the trade wars have not had a significant impact on constellation brands thus far, the company’s reliance on operational facilities in Mexico and imported wine and liquor brands are at risk of potential tariffs in the future and this must be taken into account.32, 3

Furthermore, Constellation Brand’s significant investment in Canadian cannabis company Canopy Growth has positioned STZ at the forefront of the very lucrative US cannabis market. While, Canopy Growth’s potential earnings growth is substantial and exciting, that earnings potential relies heavily on a change in U.S. legal code, and favorable regulation. These unknowns related to the U.S. political and legal system carry a significant risk.2

Industry Analysis Constellation Brands (STZ) falls in the alcohol beverage industry sub-category of the beverage industry. The alcoholic beverage industry consists of companies that sells beer and wine & spirits; STZ sells all three. This industry is projected to have a CAGR of 3.1% over the next five years. This growth will be driven by the young-adult demographic, increasing

disposable incomes, and the shifting consumer preference for premium products.4

Competitive Landscape The alcoholic beverage industry is a very mature industry that is comprised of large firms that have been around for a long time; companies such as Constellation Brands, Molson Coors, and Anheuser-Busch. Because of the maturity of the industry, companies are focusing their growth efforts into gaining market share in emerging countries with a growing middle class, such as China and India. It’s important for companies to establish a competitive advantage internationally to sustain growth due to the well-established market in the United States and Europe providing smaller growth opportunities. Another trend in the alcoholic beverage industry is the shifting consumer preferences towards healthier alcoholic beverage options. A risk of establishing/ growing an international presence is the increased costs associated with it, leading to a decrease in profit margins. Smaller companies are more exposed to this risk compared to well-established firms due to their established production and distribution channels they already have in place.4, 30

Porter’s Five Forces Threat of New Entrants Beer: low, Wine & Spirits: low, Cannabis: high The threat of new entrants into the beer and wine & spirits industries are low due to the costs associated with establishing nationwide branding and logistics on a competitive level with STZ. While this threat of competition is low, the craft distilling movement does create slight concern that a small portion of market share could be lost. Yet, as previously mentioned, the beer and wine & spirits industries are very mature. Companies have large market caps ($13-173B), making it nearly impossible for a new competitor to have a major influence on the overall industry the costs associated with creating operations on a similar level are too difficult to trouble Constellation Brands in the present.28

However, in the cannabis industry, the threat of competition is much higher ,as no one has established a dominant foothold in the US market. This is a negative for Constellation Brands as they face stiff competition from numerous alcoholic beverage giants (ex. Molson Coors invested in Hydropothecary, and

Important disclosures appear on the last page of this report.

4 Heinekin has invested in Hi-Fi Hops). Another reason the cannabis industry is becoming attractive is because of the declining sales in the beer market, roughly 13.8%, since the legalization of cannabis. A study performed by two universities in the US showed that alcohol sales were 15% lower, on average, in states where cannabis is legal.3, 6, 7 This threat of cannibalization on Constellation’s alcohol market could impact the company’s value going forward. Bargaining Power of Buyers Beer: high, Wine & Spirits: high, Cannabis: high The bargaining power of buyers in the beer, wine & spirits, and cannabis industries are all high because of the power of the buyer to switch from one brand or company to another in an instant. Although the consumer staples industry sees relatively constant growth, that does not mean consumers are always purchasing the same brands. With disposable incomes on the rise, consumers are shifting their preferences to premium products compared to lower-end, budget products, this is creating a shift in the type of brands offered in Constellations Brands’ portfolio.9

In the wine industry specifically, producers are seeing demand for their products fall behind production, posing a challenge for Constellation Brands. Over the past few years, producers have had favorable weather conditions, leading to an oversupply of grapes. These favorable weather conditions spur competition as companies do not want to hold on to their product, leading to more choices for consumers to select who they will buy from. In the cannabis industry, there are numerous products to choose from: tinctures, oils, and edibles, to name a few. The more choices consumers have, the more bargaining power they possess.10, 8 Bargaining Power of Suppliers Beer: high, Wine & Spirits: low There are many raw materials required to produce beer. Because of the necessity of the raw materials, suppliers possess a high bargaining power in terms of the final price of the materials. One way firms attempt to combat this hurdle is by purchasing raw materials in bulk, taking advantage of economies of scale. It is important that firms have low costs because if they are unable to pass increasing costs on to the consumer, they are being forced to reduce their profit margins.9

In the wine industry, suppliers have a low bargaining power due to the large number of suppliers compared to the smaller numbers of buyers, resulting in a positive impact for Constellation Brands.8

Threat of Substitutes Beer: low, Wine & Spirits: low, Cannabis: low Through their establishment of strong brand recognition, product differentiation, and diversification, Constellation Brands has a low threat of substitutes. Offering all three categories of alcoholic beverages, Constellation Brands has put themselves in a position to retain the customers they have. Cannabis has a low threat of substitutes due to the regulations that surround its alternative’s consumption. In 2018, global cannabis sales were roughly $12.2B; in 2019, those sales are expected to grow by 38% to $16.9B. Partnering the exponential growth expected for the cannabis market with its growing legalization in the US, the threat of substitutes for cannabis is low.11

Competitive Rivalry Beer: low, Wine & Spirits: low The competitive rivalry in the beer industry is low because of the brand loyalty displayed by consumers. As prices amongst different beers are not the same, consumer loyalty shows that their consumption is based on preference rather than price. Constellation Brands has cemented their position in the beer market as a leader in premium offerings, catering to the shifting consumer preferences. With consumer preferences shifting towards craft beer, companies have started to diversify their portfolios to reflect this change. Purchasing multiple craft beer companies in the previous year shows Constellations Brands’ commitment to providing their consumers with desired products.9, 12 The competitive rivalry in the wine industry is low because of the concentration of the wine market among dominant firms. The top five wine companies have captured 67% of the wine market in the US, despite there being over 2,000 wineries in the US. In the high-end wine market, competition is driven by quality of the product, something Constellation Brands leads the category in.8

Important disclosures appear on the last page of this report.

5 Industry Trends Emerging Cannabis Market In recent years, there has been a major shift in the use of cannabis and its legality. With more and more states beginning to legalize the use of cannabis recreationally, alcoholic beverage companies have taken a hit. Millennials have been at the forefront of this movement as a study of college students has shown that the number of people choosing to consume cannabis over alcohol is on the rise. Countries where cannabis consumption is legal have seen a 15% decline in alcohol sales. In August of 2018, Constellation Brands increased their 10% stake in Canopy Growth Corporation, a Canadian cannabis company, up to 38%. Constellation Brands, Molson Coors, and Heiniken are just a couple examples of companies that are investing in this emerging market.13, 14

Increasing Preference for Premium Products In the past decade, consumption of craft beer in the US has increased by 500%. Consumers shifting to a preference for craft beer is causing the alcohol beverage industry to adapt their portfolios to match that of consumer demand. Last year alone the craft beer industry saw a 4.9% increase in cases sold, compared to the overall beer industry seeing a 1.1% decrease in cases sold. Another category of beer on the rise is imported beers, specifically Mexican imports. With Constellation Brands’ strong portfolio brands of Corona and Modelo, Constellation Brands is in a place to capitalize of the changing preferences of consumers.15, 16 Global Market Expansion With such a mature alcohol beverage market in the US, companies have begun shifting their growth efforts

Source: Brookings17 internationally. Foreign countries are beginning to see a growth in the middle class, an attraction for companies who are looking to expand their global footprint. As the above graph shows, around 2020, the middle class will account for the majority of the global

population for the first time ever, growing from 3.2B in 2016 to a projected 5.2B in 2028. Because of this trend, we expect to see Constellation Brands continue to expand their global footprint to ensure company growth.17

Industry Outlook Summary The alcohol beverage industry is a rapidly changing industry. Consumers are beginning to move away from cheaper end products and have begun spending more money on premium ones, the increasing demand and popularity of cannabis is resulting in a decline of overall beer sales, and the middle class is on pace to reach a record high. With their 38% stake in Canopy Growth, strong portfolio of craft and imported Mexican beer, and efforts to increase their global presence, Constellation Brands has placed themselves in a position to see strong future growth. Company Analysis Corporate Strategy and Overview Constellation Brands seeks to drive industry-leading growth by investing in premium brands their consumers desire. STZ recently built distribution plants in Mexico in efforts to reduce their costs in their Mexican beer segment after seeing a spike in demand for it. Expanding their global footprint to cater to the growing middle class puts STZ in a position to see positive growth in the future. Areas we believe Constellation Brands can attack to ensure growth is the growing craft beer market, the growing middle class, and the growing popularity in the cannabis market.18

Revenues

Source: FactSet19

Seen above, we have projected Constellation Brands’ revenues to continue to grow in the coming years despite the overall beer industry seeing a decrease in cases sold. One reason we expect STZ to continue seeing revenue growth is their movement to focus on

Important disclosures appear on the last page of this report.

6 selling high-end brands versus low-end. Despite COGS being roughly 45% of their revenue historically, STZ is able to deflect some of their costs to the consumer through their pricing of their premium portfolio offerings, maintaining high profit margins.19, 18

Source: FactSet19

As shown in the pie chart above, 61% of STZ’s revenue comes from beer sales while the remaining 39% is accounted for by wine & spirit sales. In 2012, STZ’s revenue was comprised of 48% beer sales and 52% wine & spirit sales. The shift from mostly wine & spirit sales to mostly beer sales is a result of the changing consumer preferences for craft beer and high-end products. STZ recently sold roughly 30 of their lower-end wine & spirits brands for about $1.7B, resulting in a portfolio consisting of less low-end wine & spirit offerings, solidifying their future focus on selling high-end brands.19, 18

Competition STZ is the third largest producer and marketer of beer in the United States, behind Anheuser-Busch and Molson Coors; sales for FY2018 were $4.7B, $50.1B, and $10.8B, respectively. One of the biggest competitive advantages we believe STZ holds is their footprint in the Mexican Beer market. STZ owns the following Mexican Beers: Corona, Model, Pacifico, and Victoria, as well as their supplemental brands such as Corona Light and Modelo Negro, to name a few. This product line of Mexican Beers is a competitive advantage because of the growing consumer preference of imported beer. The seven most popular Mexican Beers in the US are as follows, in order of popularity: Tecate, Modelo, Sol, Dos Equis, Pacifico, Corona, and Victoria; STZ owns four of the seven. Not only does STZ have a variety of preferred beers in a growing segment, but the Hispanic population in the US is rapidly rising.

Source: Pew Research Center21

Shown above is the growth of the Hispanic population in the US. With the combination of the rapidly growing Hispanic population in the US, the shifting consumer preference towards imported beer, and STZ’s strong Mexican Beer portfolio, STZ is positioned to see strong growth in this segment of their business.29, 20, 21 Peer Comparisons

Source: FactSet29

Shown above is STZ’s ability to outperform peers, and the industry average, in terms of their return on equity (ROE) in the previous three years. We chose to analyze STZ’s ROE because we believe this number is a good way to interpret how well a company uses its assets to turn a profit for the shareholders. Over the past three years, STZ has outperformed the industry’s average by an average of 10.10% each year. We are confident that STZ will continue to outperform their peers, further establishing themselves as industry leaders.29

Important disclosures appear on the last page of this report.

7

Source: FactSet29

The above table shows STZ compared to a couple other large players (Anheuser-Busch, Molson Coors, Diageo), as well as an industry average, in terms of the following profitability ratios over the past five years: operating margin, ROIC, and FCF margin. In terms of their operating margin, STZ has been able to outperform these big firms, as well as the industry average. With a higher operating margin, STZ is able to turn their sales into profit at a higher rate than their peers within the industry. With recent investment in production facilities in Mexico, STZ should see this ratio rise in the future due to a decrease in costs associated with production in Mexico. Looking at their ROIC, STZ outperforms the industry average, but does not outperform other big players within the industry. In terms of their FCF margin, STZ lags behind the big players in the industry as well as the overall industry average. Overall, we believe STZ is in a strong position when it comes to profitability. They have taken steps, such as the Mexico production facilities, to ensure they are putting themselves in a position to maximize these ratios moving forward.29

Growth Catalysts One of the largest changes in the beverage industry as a whole is the increasingly healthy habits of consumers. From drinking more tea than soda and looking for alternatives to alcohol consumption when they socialize, consumers are more conscious of their unhealthy habits and are looking for ways to reduce them. A trend in the alcohol beverage industry is the increasing demand for premium craft beers. Constellation Brands has invested in craft beer to provide an alternative to their consumers versus more mainstream beer in their portfolio. In 2015, STZ bought Ballast Point for $1B, the first craft beer they offer in their portfolio; in 2017, STZ purchased their second craft beer company, Funky Buddha. STZ’s investments

into the craft beer industry solidify their commitment to matching their supply with their consumer’s changing demand. The graphic below shows that craft beer consumption has been on the rise, while overall beer consumption declined. STZ’s investment into craft beer is an investment into a growing segment; the craft beer market now accounts for over 23% of the beer market’s revenue.22, 23, 24

Source: Brewers Association24

Another potential growth catalyst in the alcohol beverage market is the emergence of cannabis and the future of cannabis-infused drinks. In 2018, STZ increased their 10% stake in Canadian Cannabis company Canopy Growth, to 38%. This emergence of the cannabis market provides STZ with the chance to further cater to

Source:

Statista25

the shifting preferences of their consumers by providing them with an alternative to alcoholic beverages. Because of its growing acceptance, shown on the graph above, we believe the cannabis market will have an impact on alcoholic beverage sales in the future as an alternative during social events, especially among younger generations.18, 25

Important disclosures appear on the last page of this report.

8 Historical M&A Activity

Source: Constellation Brands 10-K 201818, WSJ26

Strengths One of Constellation Brands’ strengths in their business is their position in the Mexican beer market. The combination of their portfolio containing four of the seven most popular Mexican beers in the US and the recent growth of the Hispanic population in the US provides STZ with growth opportunity other companies do not have. Another strength STZ has is their investment in the craft beer market. Despite standard beer sales declining, this investment keeps revenues increasing. Another strength STZ possess is

their investment in Canopy Growth. Canopy Growth is a company poised to begin growing rapidly with more and more states and countries making the use of cannabis legal. Overall, STZ has a very large, diverse portfolio that encompasses consumer preferences. Weaknesses Constellations Brands’ most glaring weakness is the lack of their global footprint, having over 95% of revenues coming from the US. This concentration in the US exposes them to risk factors that could be reduced if they were to have an increase in international revenues. If the US were to have a change in the regulation of alcohol sales within the country, STZ would be impacted greatly. The company’s lack of international presence could be viewed as a positive as the US has a very strong economy.1

Opportunities One of STZ’s opportunities is acquisition-based growth. With an established portfolio, any holes within the portfolio can be filled in a relatively quick manner via acquisitions of other companies. STZ’s recently acquired craft beer companies Funky Buddha and Ballast Point began their presence in the high-end beer segment, adhering to consumer preferences. STZ’s recent acquisitions of wine companies Schrader Cellars and Charles Smith also cemented their intentions of expanding their premium wine in labels. Their recent history of high-end craft beer and fine wine acquisitions has resulted in exposure to a new market for the company. This investment in premium products, and divestiture in low-end brands, presents STZ with the opportunity to increase margins, making the company more profitable. Threats Companies in the alcohol beverage industry are faced with heavy competition. Constellation Brands has built a strong, diverse portfolio catering to the preferences of many people. STZ has recently sold some of their low-end wines (about $1.7B worth), losing business from the low-end wine consumers. A threat that could hurt STZ’s business is a period of lack of innovative products. With a rapidly changing consumer environment, if STZ is unable to adapt to consumer preferences, consumers are not hesitant to shift loyalty. Another threat STZ faces is the constantly changing climate and the impact the change has on beer production. The production of beer is extremely energy intensive, specifically in breweries, and uses large

Important disclosures appear on the last page of this report.

9 amounts of water. With increasing scarcity of water, stable water supplies for production is an increasing concern. Another issue revolving around environmental issues is the ingredients (hops, barley, and yeast) needed in beer production that are impacted by even little changes in the climate. Rapidly changing climates present breweries with the challenge of producing consistent products their consumers desire.27

Valuation Revenue Decomposition For STZ’s revenue growth, we decided to grow cases sold for the beer sector beginning at 5% and tapered down to 2.5% by the CV year 2024. We also grew our revenue per case at 1.8% growth, tapering down to 1.5% by the cv year. We believe that these numbers are a modest representation of likely growth in cases sold when factoring in STZ’s focus on their craft beer portfolio which will see slight growth, as well as higher revenue. We decided to taper sales down to 2.5% due in large part to consumer trend reports indicating a tough path towards Y-o-Y improved growth. We also slowed growth in cases sold based on potential recessionary trends which will more than likely lead to raised interest rates and a discouragement of continued investment into expanding their beer portfolio.2

When it came to forecasting the growth in cost per case we also used a trend analysis of the prior few years as well as management guidance pointing towards the bottling and brewing facilities in Mexico operating at near peak efficiency. This led us to deduce that the previous year’s decrease in cost was likely to plateau and the focus on their craft labels would also contribute a small increase over the next few years until improvement in those facilities began decreasing costs. This is how we ended with a tapering from 2.5% down to 1.5% by CV year.2

Similar to the drive behind our assumptions associated with the beer portfolio, our wine and spirits growth assumptions were driven by consumer trending towards higher end products in this sector and STZ’s adaption to this trend, While growth in cases sold was difficult to calculate with the previous year’s acquisitions and sales of different labels, we also saw 2019’s data as a sign that the previous two years large decrease in sales was due in large part to these acquisitions and sales and that growth was trending towards a modest improvement, with sales increasing 1% Y-o-Y for 3 years and future acquisition plans

leading to improved sales growth in 2023 and 2024 which we represented with a 50 bases point increase each year. That same focus on STZ’s investment in higher end labels led to our growth in revenue equaling 2% in 2020 which was based on a historical average of the 3 years with 2018 being waited down due to the large portion of that increase coming from the sale of the Canadian wine business in the same year. We then decreased this growth by an average of 15 bases points per year, to account for a plateauing of their new price point focus, and recessionary trends pressuring them to reduce margins ever so slightly. We believe these assumptions are justified based on a mixture of historical growth analysis, trend analysis, and direction from the 2018 and 2019 10-k reports.2

Capital Expenditures Because the 2019 10-K has not been officially filed yet at the time of writing we based our capital expenditures on managerial guidance found in the 2018 10-K, capital expenditures for its main expansion project are estimated to increase in FY2019 to $1.15 billion USD, which is included in our model’s capital expenditures amount. After FY2019 we decided to be slightly more conservative than the historical growth of capital expenditures. Which was growing at an a CAGR of 14% over the past three years, which was a far cry from the 200% plus growth experienced during 2013-2015. Based on managerial guidance we believe that STZ will look to expand beer production by around 2% annually going forward and will continue to expand beer production in their Mexican facilities. Based on this we concluded a capex growth rate of 8% was appropriate.2 Cost of Goods Sold (COGS) Our COGS calculation was engrained within the revenue decomposition assumptions as supposed to setting an assumed profit margin. The COGS calculation was set as the difference between the total gross profit calculation and the total net sales calculation thee two figures were found using the previous revenue and cost assumptions listed above, and as a result we backed into an operation margin that begins at 28.97% in 2019 and steadily decreases to 28.43% in year 2024. Continuing Value (CV) Growth We estimated our Continuing Value Growth at 2% based on inflation being very close to 2%, as well as our sales and revenue growth estimation for beer and wine & spirits.

Important disclosures appear on the last page of this report.

10 Cost of Debt We calculated our cost of debt by first finding a default yield spread for a STZ BBB rated bond on Bloomberg at 2.36%. We then added this number to our risk -free rate which was based on the 10-year U.S. Treasury yield (2.48%). This produced our pre-tax cost of debt of 4.84% which was then multiplied by the marginal tax rate of 10.4% to get 4.34%. Cost of Equity We calculated our cost of equity using the CAPM equation. Our Beta was .672 which we collected off of FactSet, our risk-free rate was the aforementioned 2.48% from the U.S. 10-year Treasury Yield, and our risk premium was 5.75% which was from Damodaran online. This produced a cost of equity equal to 6.34%.37

Weighted Average Cost of Capital (WACC) We calculated our WACC using the above cost of equity and after-tax cost of debt calculations, as well as the market capitalization of STZ as the value of our equity and the sum of STZ’s short term debt, long-term debt, and the total payment on operating leases as the value of debt. Once calculating the D/E to find the appropriate weights, we produced a WACC of 5.67%. Dividend Payout Ratio We used a 30% dividend payout ratio which is much higher then the reported 17.6% of the previous fiscal year. The logic behind this significant increase was to mitigate the massive equity in earnings that was received in 2017-2019 on our income statement. Since we couldn’t forecast these earnings into the future we inputted a higher DPS to slightly lower our forecasted cash growth. Valuation Models As part of our analysis, we used the calculations and assumptions above to value STZ using a Discounted Cash Flow (DCF) model, Economic Profit (EP) model, and a Discounted Dividend Model (DDM). We also calculated relative valuations using competitors in the beverage company as comparison. After analyzing all of these valuations, we relied on a combination of our DCF and DDM models to create our target pricing range of $210-$230. DCF and EP Models For both of our DCF and EP models we set our continuing value calculation five years in the future because we believed this was the best way to value our

forecasted FCF and EP values that were calculated on our driver’s page. We set a CV NOPLAT growth rate assumption of 2% and found our CV ROIC using the 2024 NOPLAT divided by 2023 Invested Capital. Both DCF and EP values including the CV calculations were discounted to present value using our calculated WACC. The PV DCF values were then summed to equal our value of operations, whereas the EP values were summed and then added to the present values invested capital. Once the value of operations was calculated the value of debt and other liabilities were subtracted to find the value of equity. This value was then divided by the number of shares outstanding which was the total number of shares as of April 11th and then was adjusted for the 9 days since fiscal year 2019 ended in order to find the intrinsic value of the stock, $229.11 This was the valuation we felt comfortable with since it was only slightly more optimistic than most models we compared with. Dividend Discount Model Our Dividend Discount Model was based on the Class A shares solely and was largely impacted by the CV growth assumption of 2% and the dividend payout ratio of 30%. We also grew the cv on this model out to 2024 and calculated our cv value using a calculated p/e ratio of 19.95 which was slightly higher than STZ’s current P/E of 17.7. The free cash flows were all then discounted by our calculated cost of equity; 6.34%, summed, and time adjusted to reach our final value of $207.32. This value felt a bit low, especially considering the forced increase in dividend pay out that was implemented by our DPR Assumption. We still decided to use this value to help set a floor for our target price. Relative Valuations For our relative valuation we used fellow competitors in the alcoholic beverage industry such as Molson Coors, Anheuser-Busch, The Boston Beer Company, and Brown Foreman. We used Yahoo Finance’s analyst forecasts of these companies EPS, P/E, and P/B’s to create aggregate numbers, and used these aggregate numbers to compare Constellation Brand’s valuation with the P/E and P/B multiples of its industry competitors. We felt that this was somewhat inaccurate due to Constellation Brands recent preliminary reporting of some 2019 data creating a timing difference between the information used to calculate the other companies metrics. Overall we found a P/E of $275.09 in 2019, and a P/B at a more realistic $216.46.

Important disclosures appear on the last page of this report.

11 Sensitivity Analysis We created data tables to further analyze our assumptions and their impact on our stock price. In these tables, we see how our stock price would change, and by how much, if we were to change any of our underlying assumption, even by small amounts. WACC and Continuing Value (CV) Growth Rate of NOPLAT We chose to analyze the WACC’s sensitivity because it is the discounting rate in our model used to calculate the PV of the company and we chose to analyze the CV Growth Rate of NOPLAT because this is the rate that we predict the company will continue to grow at in its steady state, beginning in 2024. One reason STZ would see a change in their WACC would be the decision to shift the percentage of debt versus equity in their capital structure. One reason our assumption of the CV Growth Rate could change would be positive reporting’s that give us a more optimistic outlook on the company. Decreasing the WACC by 30 basis points (bps) results in the stock price increasing by $27.41. Similarly, if CV of NOPLAT growth increases 25 bps, the stock price would increase by $14.15. Pre-Tax Cost of Debt and Marginal Tax Rate We analyzed the relationship between the marginal tax rate, because of its direct impact on income, and the pre-tax cost of debt, which has a tax shield component in its calculation. With the corporate tax rate dropping 14% recently, we wanted to see how much of an impact a change in the lower tax rate would have on the stock price. STZ’s marginal tax rate will likely be different year-over-year due to the different tax credits they receive every year. A 140 bps decrease in the marginal tax rate results in an increase to the stock price of $10. On the other hand, a decrease in the pre-tax cost of debt of 84 bps only decreases the stock price by $0.30. Growth in Cases Sold (Beer) and Growth in Revenue Per Case (Beer) We examined the relationship between the growth in cases sold of beer and the growth in revenue per case of beer, and more importantly, which is more important to increase the stock price. An increase in the number of cases sold of beer would be the result of STZ tapping into a new market and obtaining new customers. An increase in the revenue per case could be the result of several different things. One way to increase the revenue per case could be reducing cost of goods sold while another could be selling higher-end wine, something STZ has taken steps to achieve. If STZ has

their cases sold growth at 3.25% and revenue per case growth at 2.25%, their stock price would increase from $229.11 to $241.21. WACC and Growth in Cases Sold and Revenue Per Case We analyzed the WACC and the growth in cases sold (beer and wine & spirits) and the growth in revenue per case (beer and wine & spirits). One way STZ could see an increase in their revenue per case would be the reduction of production costs; STZ has recently invested in production plants in Mexico in hope to achieve this goal. As mentioned earlier, one way for STZ to decrease their WACC would be increasing the amount of debt in their capital structure. As shown in the sensitivity tables, the more STZ is able to decrease their WACC, the more their stock price will increase. CV Growth Rate of NOPLAT and CV Growth of ROIC We examined the impact of CV growth and CV ROIC on STZ’s stock price. Both variables are important because of their use in valuing STZ when it enters its steady state. CV ROIC is important to STZ because they are constantly looking for ways to decrease their costs of production and one of those ways it to invest in more efficient buildings. Ensuring improved efficiency in these buildings would result in an increase in ROIC. As mentioned earlier, since CV growth rate of NOPLAT is an assumption, it’s important to see the impact of small changes in this growth rate. For example, if the CV growth rate of NOPLAT increases 50 bps, STZ’s stock price will increase by $27.

Important disclosures appear on the last page of this report.

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14Sheetz, M. CNBC – Corona Beer Maker Constellation Ups Bet on Cannabis with $4 Billion Investment in Canopy Growth. (2018). Retrieved from https://www.cnbc.com/2018/08/15/corona-maker-constellation-ups-bet-on-cannabis-with-4-billion-investm.html

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22Trotter, G. Chicago Tribune – How Ballast Point, Once One of the Fastest-Growing Craft

Important disclosures appear on the last page of this report.

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Important Disclaimer This report was created by students enrolled in the Applied Equity Valuation class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge, and abilities. Members of the Krause Fund are not registered investment advisors, brokers, or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

Constellation BrandsRevenue Decomposition

Fiscal Years Ending Feb. 28 2017 2018 2019 2020E 2021E 2022E 2023E CV (2024E)BeerCases Sold (24-pack, 12 ounce equivalent) $ 246.40 $ 268.00 $ 294.10 $ 308.81 $ 321.16 $ 330.79 $ 339.06 $ 347.54 Revenue per Case $ 17.16 $ 17.38 $ 17.69 $ 18.01 $ 18.33 $ 18.61 $ 18.88 $ 19.17 Beer Net Sales $ 4,229.30 $ 4,658.50 $ 5,202.10 $ 5,560.52 $ 5,887.04 $ 6,154.60 $ 6,403.10 $ 6,661.62

Growth in Cases Sold 9.95% 8.77% 9.74% 5.00% 4.00% 3.00% 2.50% 2.50%Growth in Revenue per Case 6.18% 1.27% 1.76% 1.80% 1.80% 1.50% 1.50% 1.50%

Wine and SpiritsCases Sold (9-liters) 69.20$ 59.00$ 58.50$ 59.09$ 59.68$ 60.27$ 61.18$ 62.40$ Revenue per Case 44.83$ 49.60$ 49.81$ 50.81$ 51.72$ 52.65$ 53.44$ 54.24$ Wine Net Sales 2,739.30$ 2,559.50$ 2,535.10$ 2,611.65$ 2,685.25$ 2,760.92$ 2,844.37$ 2,944.77$ Spirit Net Sales 362.90$ 367.00$ 387.80$ 390.25$ 401.24$ 412.55$ 425.02$ 440.02$ Wine and Spirit Net Sales 3,102.20$ 2,926.50$ 2,913.90$ 3,001.90$ 3,086.49$ 3,173.47$ 3,269.39$ 3,384.80$

Growth in Cases Sold 1.47% -14.74% -0.85% 1.00% 1.00% 1.00% 1.50% 2.00%Growth in Revenue per Case 4.50% 10.65% 0.42% 2.00% 1.80% 1.80% 1.50% 1.50%

Total Net Sales 7,331.50$ 7,585.00$ 8,116.00$ 8,562.42$ 8,973.53$ 9,328.08$ 9,672.49$ 10,046.42$ Total Net Sales Growth Rate 11.96% 3.46% 7.00% 5.50% 4.80% 3.95% 3.69% 3.87%

BeerCost per Case 8.43$ 7.94$ 7.90$ 8.10$ 8.30$ 8.45$ 8.60$ 8.73$ Cost Growth (Decrease) 2.35% -5.79% -0.56% 2.50% 2.50% 1.80% 1.80% 1.50%Cases Sold (24-pack, 12 ounce equivalent) 246.40$ 268.00$ 294.10$ 308.81$ 321.16$ 330.79$ 339.06$ 347.54$ Wine and SpiritsCost per Case 25.17$ 27.30$ 27.45$ 28.27$ 28.98$ 29.56$ 30.15$ 30.75$ Cost Growth (Decrease) 1.52% 8.47% 0.56% 3.00% 2.50% 2.00% 2.00% 2.00%Cases Sold (9-liters) 69.20$ 59.00$ 58.50$ 59.09$ 59.68$ 60.27$ 61.18$ 62.40$

Gross Profit - Beer 2,151.30$ 2,529.30$ 2,878.71$ 3,059.98$ 3,221.45$ 3,359.63$ 3,486.68$ 3,627.46$ Gross Profit - Wine & Spirits 1,360.70$ 1,316.00$ 1,308.08$ 1,331.36$ 1,357.07$ 1,391.82$ 1,424.84$ 1,465.73$ Total Gross Profit 3,512.00$ 3,845.30$ 4,186.79$ 4,391.34$ 4,578.52$ 4,751.45$ 4,911.52$ 5,093.19$ Cost of Goods Sold 3,819.50$ 3,739.70$ 3,929.22$ 4,171.09$ 4,395.01$ 4,576.63$ 4,760.96$ 4,953.23$

Constellation BrandsIncome Statement

Fiscal Years Ending Feb. 28 2017 2018 2019 2020E 2021E 2022E 2023E CV (2024E)Sales 8,062.00$ 8,327.00$ $ 8,884.00 $ 9,353.59 $ 9,802.69 $ 10,189.99 $ 10,566.22 $ 10,974.71 Excise taxes 730.00 742.00$ $ 768.00 $ 791.17 $ 829.15 $ 861.91 $ 893.74 $ 928.29 Net sales 7,332.00$ 7,585.00$ $ 8,116.00 $ 8,562.42 $ 8,973.53 $ 9,328.08 $ 9,672.49 $ 10,046.42 Cost of product sold 3,802.00$ 3,768.00$ $ 4,036.00 $ 4,171.09 $ 4,395.01 $ 4,576.63 $ 4,760.96 $ 4,953.23 Depreciation expense 237.50$ 293.80$ $ 333.10 $ 421.36 $ 479.06 $ 539.46 $ 602.93 $ 669.84 Amortization expense 69.10$ 201.40$ $ 143.40 $ 71.96 $ 70.34 $ 68.75 $ 67.21 $ 65.69 Gross profit 3,529.00$ 3,817.00$ $ 4,080.00 $ 4,391.34 $ 4,578.52 $ 4,751.45 $ 4,911.52 $ 5,093.19 SG&A 1,392.00$ 1,533.00$ $ 1,668.00 $ 1,681.83 $ 1,762.58 $ 1,832.22 $ 1,899.87 $ 1,973.32 Impairments -$ -$ -$ -$ -$ -$ -$ -$ Gain on equity method investment -$ -$ -$ -$ -$ -$ -$ -$ Gain on sale of business 262.00$ -$ -$ -$ -$ -$ -$ -$ Operating income / loss 2,399.00$ 2,285.00$ 2,412.00$ 2,709.51$ 2,815.94$ 2,919.23$ 3,011.66$ 3,119.87$ Equity in earnings / losses of equity method investees 27.00$ 487.00$ 2,102.00$ -$ -$ -$ -$ -$ Interest expense 333.00$ 332.00$ 367.00$ 432.05$ 434.94$ 468.73$ 493.75$ 523.82$ Loss on write-off of debt issuance costs -$ 97.00$ 2.00$ -$ -$ -$ -$ -$ Income / loss before income taxes 2,093.00$ 2,343.00$ 4,145.00$ 2,277.45$ 2,381.00$ 2,450.50$ 2,517.91$ 2,596.05$ Provision for / benefit from income taxes 554.00$ 12.00$ 686.00$ 236.86$ 247.62$ 254.85$ 261.86$ 269.99$ Net income / loss 1,539.00$ 2,331.00$ 3,459.00$ 2,040.60$ 2,133.38$ 2,195.65$ 2,256.05$ 2,326.06$ Net income / loss attributable to noncontrolling interests 4.00$ 12.00$ 23.00$ 7.65$ 8.00$ 8.23$ 8.46$ 8.72$ Net income / loss attributable to CBI 1,535.00$ 2,319.00$ 3,436.00$ 2,032.95$ 2,125.38$ 2,187.41$ 2,247.59$ 2,317.34$

EPS - Class A 7.79$ 12.04$ 18.26$ 10.79$ 11.33$ 11.70$ 12.06$ 12.47$ EPS - Class B 7.07$ 10.93$ 16.60$ 9.81$ 10.30$ 10.64$ 10.96$ 11.33$ Year end Shares Oustanding - Class A 171.45$ 168.06$ 167.00$ 167.16$ 166.37$ 165.70$ 165.14$ 164.69$ Year end Shares Oustanding - Class B 23.35$ 23.33$ 23.33$ 23.33$ 23.33$ 23.33$ 23.33$ 23.33$ Dividends per Class A Common Share 1.60$ 2.08$ 2.96$ 3.24$ 3.40$ 3.51$ 3.62$ 3.74$ Dividends per Class B Convertible Common Share 1.44$ 1.88$ 2.68$ 2.88$ 3.03$ 3.12$ 3.22$ 3.33$ Actual Dividends Paid 315.88$ 400.51$ 559.98$ 607.94$ 638.77$ 657.01$ 674.69$ 695.24$

Constellation BrandsBalance Sheet

Fiscal Years Ending Feb. 28 2017 2018 2019 2020E 2021E 2022E 2023E CV (2024E) Total assets 18,602$ 20,539$ $ 29,232 $ 28,941 $ 31,303 $ 33,429 $ 35,762 $ 40,292

Total current assets 3,230$ 3,474$ $ 3,684 $ 4,819 $ 6,385 $ 7,674 $ 9,124 $ 12,719 Cash and cash equivalents 177$ 90$ $ 94 $ 507 $ 1,891 $ 3,028 $ 4,332 $ 7,770 Accounts receivable 737$ 776$ $ 847 $ 982 $ 1,005 $ 1,019 $ 1,030 $ 1,043 Inventories 1,955$ 2,084$ $ 2,130 $ 2,825 $ 2,961 $ 3,078 $ 3,192 $ 3,315 Prepaid expenses and other 361$ 524$ $ 613 $ 504 $ 529 $ 550 $ 570 $ 592

PP&E 3,933$ 4,790$ $ 5,267 5,988$ 6,743$ 7,537$ 8,373$ 9,258$ Goodwill 7,921$ 8,083$ $ 8,089 $ 8,089 $ 8,089 $ 8,089 $ 8,089 $ 8,089 Intangible assets 3,378$ 3,305$ 3,198$ 3,126$ 3,056$ 2,987$ 2,920$ 2,854$ Other assets 141$ 887$ $ 6,810 6,919$ 7,030$ 7,142$ 7,256$ 7,373$

Total liabilities and stockholders' equity 18,602$ 20,539$ 29,232$ 28,941$ 31,303$ 33,429$ 35,762$ 40,292$ Total liabilities 11,718$ 12,476$ 16,394$ 17,017$ 18,241$ 19,183$ 20,286$ 23,534$

Total current liabilities 2,698$ 1,945$ 3,164$ 3,841$ 3,930$ 3,723$ 3,631$ 5,610$ Notes payable 607$ 747$ 719$ 805$ 840$ 868$ 895$ 925$ Current maturities of long-term debt 911$ 23$ 1,065$ 1,196$ 1,162$ 850$ 658$ 2,527$ Accounts payable 560$ 592$ 617$ 755$ 792$ 823$ 853$ 886$

Other accrued expenses and liabilities 620$ 583$ 690$ 1,084$ 1,137$ 1,181$ 1,225$ 1,272$ Accrued excise taxes 45$ 29$ 35$ 54$ 57$ 59$ 61$ 64$ Other accrued expenses 576$ 554$ 560$ 1,030$ 1,080$ 1,122$ 1,164$ 1,209$

Long-term debt, less current maturities 7,721$ 9,418$ 11,760$ 11,633$ 12,692$ 13,760$ 14,868$ 16,046$ Deferred income taxes 1,134$ 718$ 949$ 1,012$ 1,080$ 1,153$ 1,230$ 1,313$ Other liabilities 166$ 395$ 522$ 530$ 539$ 547$ 556$ 565$

Total stockholders' equity 6,885$ 8,063$ 12,837$ 11,924$ 13,062$ 14,246$ 15,477$ 16,758$ Total CBI stockholders' equity 6,891$ 8,046$ 12,551$ 11,924$ 13,062$ 14,246$ 15,477$ 16,758$

Total CBI stockholders' equity before treasury stoc 9,669$ 11,853$ 14,827$ 16,739$ 18,381$ 20,069$ 21,804$ 23,589$ Preferred stock -$ -$ -$ -$ -$ -$ -$ -$ Common Stock 2,759$ 2,828$ 2,926$ 3,023$ 3,121$ 3,218$ 3,316$ 3,413$ Retained earnings 7,310$ 9,228$ 12,104$ 13,919$ 15,464$ 17,054$ 18,691$ 20,379$ Accumulated other comprehensive loss / income (400)$ (203)$ (203)$ (203)$ (203)$ (203)$ (203)$ (203)$

Total treasury stock (2,778)$ (3,807)$ (4,311)$ (4,815)$ (5,319)$ (5,823)$ (6,327)$ (6,831)$ Class A common stock, at cost (2,776)$ (3,805)$ (4,309)$ (4,813)$ (5,317)$ (5,821)$ (6,325)$ (6,829)$ Class B convertible common stock, at cost (2)$ (2)$ (2)$ (2)$ (2)$ (2)$ (2)$ (2)$

Noncontrolling interests (6)$ 17$ $ 286 -$ -$ -$ -$ -$

Constellation BrandsCash Flow Statement

Fiscal Years Ending Feb. 28 2017 2018 2019Net cash provided by / used in operating activities 1,696.00 1,931.40 2,246.30

Net income / loss 1,539.20 2,330.80 3,459.10 Total adjustments 156.80 (399.40) (1,212.80)

Unrealized gain on equity securities - (464.30) (1,971.20)Gain on sale of unconsolidated investment - - (99.80)Net income tax benefit related to the Tax Cuts and Jobs Act - (363.00) (37.60)Equity in earnings of equity method investees, net of distributed earnings - - - Depreciation 237.50 293.80 333.10 Deferred tax provision / benefit 128.70 114.90 426.90 Stock-based compensation 56.10 60.90 64.10

Amortization of intangible and other assets 69.10 201.40 143.40 Amortization of debt issuance costs 12.70 108.70 29.40 Amortization of intangible assets 56.40 92.70 114.00

Loss on contract termination - 59.00 - Gain on remeasurement to fair value of equity method investment - - - Impairment of goodwill and intangible assets - - - Gain on sale of business (262.40) - -

Change in operating assets and liabilities, net of effects from purchase of business (72.20) (302.10) (71.70) Accounts receivable (49.40) (34.10) (71.90) Inventories (151.00) (123.80) (61.90) Prepaid expenses and other current assets (71.60) (111.50) (103.00) Accounts payable 115.90 12.80 21.40

Other accrued expenses and liabilities 122.20 (71.60) (22.10) Accrued excise taxes 16.20 - - Other accrued expenses and liabilities excluding accrued excise taxes 106.00 - -

Other (38.30) 26.10 165.80 Noncash portion of loss on write-off of debt issuance costs - - -

Other excluding noncash portion of loss on write-off of debt issuance costs - 26.10 - Loss / gain on disposal of assets, net - - - Gain / loss on business sold, net - - - Other, net - - -

Net cash used in / provided by investing activities (1,461.80) (1,423.10) (4,831.80) Proceeds from redemption of available-for-sale debt securities - - - Investment in equity securities - (191.30) (4,081.50) Purchases of property, plant and equipment (907.40) (1,057.60) (886.30) Purchase of business (1,111.00) (150.10) (45.60)

Other investing activities 556.60 (24.10) 181.60 Other investing activities excluding proceeds from sales of assets and proceeds from notes receivable 556.60 (24.10) 109.30

Payments related to / proceeds from sale of business 575.30 (5.00) 110.20 Other investing activities excluding payments related to / proceeds from sale of business (18.70) (19.10) (0.90)

Investments in equity method investees - - - Other investing activities excluding investments in equity method investees - - -

Proceeds from sales of assets - - 72.30 Proceeds from notes receivable - - -

Net cash provided by / used in financing activities (134.80) (601.20) 2,593.30 Proceeds from issuance of long-term debt 1,965.60 7,933.40 3,657.60

Proceeds from issuance of long-term debt excluding proceeds from noncontrolling interests 1,965.60 7,933.40 - Proceeds from noncontrolling interests - - -

Proceeds from shares issued under equity compensation plans 59.70 49.40 63.20 Proceeds from exercises of employee stock options - - - Proceeds from employee stock purchases - - -

Purchases of treasury stock (1,122.70) (1,038.50) (504.30) Dividends paid (315.10) (400.10) (557.70) Principal payments of long-term debt (971.80) (7,128.70) (62.80) Payments of debt issuance costs (14.10) (122.20) (34.60) Net proceeds from / repayments of notes payable 197.10 137.20 45.50 Excess tax benefits from stock-based payment awards 131.40 - - Proceeds from maturity of derivative instrument - - - Payment of delayed purchase price arrangement - - - Payments of minimum tax withholdings on stock-based payment awards (64.90) (31.70) (13.60) Payment of restricted cash upon issuance of long-term debt - - -

Effect of exchange rate changes on cash and cash equivalents (5.10) 5.80 (4.50) Net increase / decrease in cash and cash equivalents 94.30 (87.10) 3.30 Cash and cash equivalents, beginning of period 83.10 177.40 90.30 Cash and cash equivalents, end of period 177.40 90.30 93.60

Constellation BrandsCash Flow Statement

Fiscal Years Ending Feb. 28 2020E 2021E 2022E 2023E CV (2024E) Cash Flows from Operating Activities Net Income (loss) 2,032.95 2,125.38 2,187.41 2,247.59 2,317.34

Adjustments to Reconcile Net Income in OperationsDepreciation 421.36 479.06 539.46 602.93 669.84 Amoritization and impairments of intangible assets 71.96 70.34 68.75 67.21 65.69 Change in Deferred Taxes 63.69 67.97 72.53 77.40 82.60 Accounts Recievable 135.13 22.65 14.22 11.21 12.39 Inventories 695.25 135.65 116.98 113.64 123.38 Prepaid Expenses and Other Current Assets (108.53) 24.22 20.89 20.29 22.03

Accounts Payable 138.47 36.27 31.28 30.39 32.99 Accrued Excise Taxes 19.22 2.60 2.25 2.18 2.37 Other Accrued Expenses and Liabilities 470.22 49.46 42.66 41.44 44.99 Other Liabilities 8.35 8.48 8.62 8.76 8.90 Total Adjustments 471.43 531.67 613.46 685.16 749.58 Net Cash Flows From Operating Activities 2,504.37 2,657.05 2,800.87 2,932.75 3,066.92

Cash Flows from Investing Activities Property, Plant, and Equipment (1,054.38) (1,176.35) (1,272.38) (1,375.93) (1,487.63) Other Investing Activties (108.96) (110.70) (112.47) (114.27) (116.10) Net Cash Flows From Investing Activities (1,163.34) (1,287.05) (1,384.85) (1,490.21) (1,603.73)

Cash Flows from Financing Activities Proceeds from issuance (payment) of Long-Term Debt 3.96 1,025.20 755.84 915.73 3,047.00 Purchase of Treasury Stock (504.00) (504.00) (504.00) (504.00) (504.00) Dividends Paid (607.94) (638.77) (657.01) (674.69) (695.24) Net Proceeds from (Repayment of) Notes Payable 86.45 34.09 28.41 27.11 29.48 Proceeds from Shares Issued under Equity Compensation Plans 97.53 97.53 97.53 97.53 97.53 Net Cash From Financing Activities (924.00) 14.05 (279.23) (138.32) 1,974.76

Net Increase in Cash and Cash Equivalents 417.03 1,384.05 1,136.79 1,304.22 3,437.95 Cash and Cash Equivalents, Beginning of Year 90.00 507.03 1,891.08 3,027.87 4,332.09 Cash and Cash Equivalents, End of Year 507.03 1,891.08 3,027.87 4,332.09 7,770.04

Constellation BrandsCommon Size Income Statement

Fiscal Years Ending Feb. 28 2017 2018 2019 2020E 2021E 2022E 2023E CV (2024E)Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Excise taxes 9.05% 8.91% 8.64% 8.46% 8.46% 8.46% 8.46% 8.46%Net sales 90.95% 91.09% 91.36% 91.54% 91.54% 91.54% 91.54% 91.54%Cost of product sold 47.16% 45.25% 45.43% 44.59% 44.83% 44.91% 45.06% 45.13% Depreciation 2.95% 3.53% 3.75% 4.50% 4.89% 5.29% 5.71% 6.10% Amortization 0.86% 2.42% 1.61% 0.77% 0.72% 0.67% 0.64% 0.60%Gross profit 43.77% 45.84% 45.93% 46.95% 46.71% 46.63% 46.48% 46.41%SG&A 17.27% 18.41% 18.78% 17.98% 17.98% 17.98% 17.98% 17.98%Impairments - - - - - - - - Gain on remeasurement to fair value of equity method investment - - - - - - - - Gain on sale of business 3.25% - - - - - - - Operating income / loss 29.76% 27.44% 27.15% 28.97% 28.73% 28.65% 28.50% 28.43%Equity in earnings / losses of equity method investees 0.33% 5.85% 23.66% - - - - - Interest expense 4.13% 3.99% 4.13% 4.62% 4.44% 4.60% 4.67% 4.77%Loss on write-off of debt issuance costs 0.00% 1.16% 0.02% - - - - - Income / loss before income taxes 25.96% 28.14% 46.66% 24.35% 23.23% 22.35% 21.55% 20.75%Provision for / benefit from income taxes 6.87% 0.14% 7.72% 2.53% 2.53% 2.50% 2.48% 2.46%Net income / loss 19.09% 27.99% 38.94% 21.82% 21.76% 21.55% 21.35% 21.19%Net income / loss attributable to noncontrolling interests 0.05% 0.14% 0.26% - - - - - Net income / loss attributable to CBI 19.04% 27.85% 38.68% 21.73% 21.68% 21.47% 21.27% 21.12%

Constellation BrandsCommon Size Balance Sheet% of SalesFiscal Years Ending Feb. 28 2017 2018 2019 2020E 2021E 2022E 2023E CV (2024E)Total assets 230.74% 246.66% 329.04% 309.41% 319.33% 328.06% 338.46% 367.13%

Total current assets 40.06% 41.72% 41.47% 51.52% 65.14% 75.31% 86.35% 115.90%Cash and cash equivalents 2.20% 1.08% 1.05% 5.42% 19.29% 29.71% 41.00% 70.80%Accounts receivable 9.14% 9.32% 9.53% 10.50% 10.25% 10.00% 9.75% 9.50%Inventories 24.25% 25.03% 23.98% 30.21% 30.21% 30.21% 30.21% 30.21%Prepaid expenses and other 4.48% 6.29% 6.90% 5.39% 5.39% 5.39% 5.39% 5.39%

Property, plant and equipment 48.78% 57.52% 59.29% 64.02% 68.79% 73.96% 79.24% 84.36%Goodwill 98.25% 97.07% 91.05% 86.48% 82.52% 79.38% 76.56% 73.71%Intangible assets 41.90% 39.69% 36.00% 33.42% 31.17% 29.31% 27.63% 26.01%Other assets 1.75% 10.65% 76.65% 73.97% 71.71% 70.09% 68.68% 67.18%

Total liabilities and stockholders' equity 230.74% 246.66% 329.04% 309.41% 319.33% 328.06% 338.46% 367.14%Total liabilities 145.35% 149.83% 184.53% 181.93% 186.08% 188.25% 191.99% 214.44%

Total current liabilities 33.47% 23.36% 35.61% 41.07% 40.09% 36.53% 34.36% 51.12%Notes payable to banks 7.53% 8.97% 8.09% 8.61% 8.56% 8.52% 8.47% 8.42%Current maturities of long-term debt 11.30% 0.28% 11.99% 12.79% 11.86% 8.35% 6.22% 23.03%Accounts payable 6.95% 7.11% 6.95% 8.08% 8.08% 8.08% 8.08% 8.08%

Other accrued expenses and liabilities 7.69% 7.00% 7.77% 11.59% 11.59% 11.59% 11.59% 11.59%Accrued excise taxes 0.56% 0.35% - 0.58% 0.58% 0.58% 0.58% 0.58%Other accrued expenses and liabilities excluding accrued excise 7.14% 6.65% 6.30% 11.01% 11.01% 11.01% 11.01% 11.01%

Long-term debt, less current maturities 95.77% 113.10% 132.37% 124.37% 129.47% 135.03% 140.71% 146.21%Deferred income taxes 14.07% 8.62% 10.68% 10.82% 11.02% 11.31% 11.64% 11.96%Other liabilities 2.06% 4.74% 5.88% 5.67% 5.50% 5.37% 5.26% 5.15%

Total stockholders' equity 85.40% 96.83% 144.50% 127.48% 133.25% 139.81% 146.47% 152.70%Total CBI stockholders' equity 85.48% 96.63% 141.28% 127.48% 133.25% 139.81% 146.47% 152.70%

Total CBI stockholders' equity before treasury stock 119.93% 142.34% 166.89% 178.96% 187.51% 196.95% 206.35% 214.94%Preferred stock - - - - - - - - Common Stock 34.22% 33.96% 32.93% 32.32% 31.83% 31.58% 31.38% 31.10%Retained earnings 90.67% 110.82% 136.25% 148.81% 157.75% 167.36% 176.89% 185.69%Accumulated other comprehensive loss / income -4.96% -2.44% -2.29% -2.17% -2.07% -1.99% -1.92% -1.85%

Total treasury stock -34.46% -45.72% -48.53% -51.48% -54.26% -57.14% -59.88% -62.24%Class A common stock, at cost -34.43% -45.69% -48.50% -51.46% -54.24% -57.12% -59.86% -62.22%Class B convertible common stock, at cost -0.02% -0.02% -0.02% -0.02% -0.02% -0.02% -0.02% -0.02%

Noncontrolling interests -0.07% 0.20% 3.22% - - - - -

Constellation BrandsWeighted Average Cost of Capital (WACC) Estimation

Risk Free Rate 2.48%Risk Premium 5.75%Beta (3-Year Monthly) 0.672

CAPM 6.34%Pre-Tax Cost of Debt 4.84%After-Tax Cost of Debt 4.34%

Debt to Equity CalculationYear 2019Debt (ST + LT) 12,825.00$ Operating Leases 559.30$ Total Debt 13,384.30$ Total Equity 36,385.39$ Debt plus Equity 49,769.69$ D/D+E 26.89%E/D+E 73.11%

WACC Calculation 5.80%

Constellation BrandsValue Driver Estimation

Fiscal Years Ending Feb. 28 2017 2018 2019 2020E 2021E 2022E 2023E CV (2024E)NOPLAT 1,669.72 1,880.33 2,645.99 2,723.18 2,610.36 2,704.69 2,792.98 2,897.16 Sales 8,062.00 8,327.00 8,884.00 9,353.59 9,802.69 10,189.99 10,566.22 10,974.71 -Excise Tax 730.00 742.00 768.00 791.17 829.15 861.91 893.74 928.29 -COGS (Less Depreciation and Amortization) 3,495.40 3,272.80 3,559.50 3,677.77 3,845.61 3,968.41 4,090.83 4,217.69 -SG&A 1,392.00 1,533.00 1,668.00 1,681.83 1,762.58 1,832.22 1,899.87 1,973.32 -Depreciation 238.00 294.00 294.00 421.36 479.06 539.46 602.93 669.84 -Amortization of Non-Goodwill Intangibles 56.40 92.70 92.70 71.96 70.34 68.75 67.21 65.69 +Implied Interest on Operating Leases 17.97 20.25 22.05 24.01 26.15 28.48 31.01 33.77EBITA 2,168.17 2,412.75 2,523.85 2,733.52 2,842.09 2,947.71 3,042.67 3,153.65

Income Tax Provisions 554.20 11.90 12.90 243.67 236.86 247.62 254.85 261.86 Tax Shield on Interest Expense 94.91 73.37 81.11 44.93 45.23 48.75 51.35 54.48 Tax Shield on Interest on Operating Leases 36.02 31.15 14.85 16.18 17.61 19.18 20.89 22.75 Tax Shield on Impairment of Non-Goodwill and Intangible Assests - - - - - - - - Tax on Gain on Remeasurement of Fair Value - - - - - - - - Tax on Gain on Sale of Business 74.67 - - - - - - - Less: Adjusted Taxes 610.45 116.42 108.86 304.78 299.70 315.55 327.09 339.09

Deferred Tax Liability, Net 1,134.00 718.00 949.00 1012.44 1080.41 1152.95 1230.35 1312.95Previous Year Deferred Tax Liability 1,022.00 1,134.00 718.00 718.00 1012.44 1080.41 1152.95 1230.35Plus: Deferred Taxes 112.00 -416.00 231.00 294.44 67.97 72.53 77.40 82.60

Invested Capital (IC) 9,662.32 11,304.37 17,585.26 18,626.39 19,559.06 20,517.90 21,522.43 22,589.91 Normal Cash 177.00 90.00 93.60 101.10 105.95 110.14 114.20 118.62 Accounts Receivable 737.00 776.00 847.00 982.13 1004.78 1019.00 1030.21 1042.60 Inventory 1,955.00 2,084.00 2,130.00 2,825.25 2,960.90 3,077.89 3,191.53 3,314.91 Other Current Assets 361.00 524.00 613.00 504.47 528.69 549.58 569.87 591.90 Accounts Payable 560.00 592.00 617.00 755.47 791.75 823.03 853.41 886.41 Accrued Excise Taxes 45.00 29.00 35.00 54.22 56.83 59.07 61.25 63.62 Other Accrued Expenses & Liabilities 620.00 583.00 690.00 1030.22 1079.69 1122.34 1163.78 1208.77Operating Working Capital 2,005.00 2,299.00 2,376.60 2,627.25 2,728.89 2,811.23 2,888.61 2,972.85

Plus: Net PPE 3,933.00 4,790.00 5,267.00 5,988.28 6,743.27 7,536.58 8,373.05 9,257.76

Plus: PV of Operating Leases 371.32 418.37 455.61 496.16 540.31 588.40 640.77 697.80Intangible Assets 3,378.00 3,305.00 3,198.00 3,126.05 3,055.71 2,986.96 2,919.75 2,854.05 Other Assets 141.00 887.00 6,810.00 6,918.96 7,029.66 7,142.14 7,256.41 7,372.51 Plus: Other Long Term Operating Assets 3,519.00 4,192.00 10,008.00 10,045.01 10,085.37 10,129.09 10,176.16 10,226.57Less: Other Long Term Operating Liabilities 166.00 395.00 521.95 530.30 538.79 547.41 556.17 565.06

ROIC 18.77% 19.46% 23.41% 15.49% 14.01% 13.83% 13.61% 13.46%NOPLAT 1,669.72 1,880.33 2,645.99 2,723.18 2,610.36 2,704.69 2,792.98 2,897.16 Invested Capital 9,662.32 11,304.37 17,585.26 18,626.39 19,559.06 20,517.90 21,522.43 22,589.91 EP 1,153.31 1,319.53 1,989.89 1,702.53 1,529.28 1,569.48 1,602.12 1,647.99 NOPLAT 1,669.72 1,880.33 2,645.99 2,723.18 2,610.36 2,704.69 2,792.98 2,897.16 Invested Capital 9,662.32 11,304.37 17,585.26 18,626.39 19,559.06 20,517.90 21,522.43 22,589.91 WACC 5.80% 5.80% 5.80% 5.80% 5.80% 5.80% 5.80% 5.80%FCF 904.92 238.28 (3,634.89) 1,682.05 1,677.69 1,745.84 1,788.45 1,829.68 NOPLAT 1,669.72 1,880.33 2,645.99 2,723.18 2,610.36 2,704.69 2,792.98 2,897.16 Change in Invested Capital 764.79 1,642.05 6,280.89 1,041.13 932.66 958.85 1,004.53 1,067.48

Constellation BrandsDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 2.00% CV ROIC 13.46% WACC 5.80% Cost of Equity 6.34%

Fiscal Years Ending Feb. 28 2019 2020E 2021E 2022E 2023E CV (2024E)

DCF ModelFCF $ 1,682.05 $ 1,677.69 $ 1,745.84 $ 1,788.45 $ 64,844.15 Discount Rate 105.80% 111.94% 118.44% 125.32% 125.32%PV $ 1,589.78 $ 1,498.68 $ 1,474.00 $ 1,427.15 $ 51,744.30

Value of Operations 57,733.90$ Value of Non-Operating AssetsExcess Cash (Actual - Normal)Value of Debt 12,825.00$ Value of Other Liabilities 1,537.02$ PV of Operating Leases 559.30$ PV of ESOP 960.72$ Minority Interest Liabilities 17.00$ Value of Equity 43,371.89$ Number of Shares 190.33 DCF Stock Price Valuation 227.88$ Time Adjusted 229.11$ per share

EP ModelEP 1,702.53$ 1,529.28$ 1,569.48$ 1,602.12$ 43,321.72$ Discount Rate 105.80% 111.94% 118.44% 125.32% 125.32%Invested Capital 17,585.26$ PV 1,609.14$ 1,366.10$ 1,325.10$ 1,278.46$ 34,569.84$

Value of Operations 57,733.90$ Value of Non-Operating AssetsExcess CashValue of Debt 12,825.00$ Value of Other Liabilities 1,537.02$ PV of Operating Leases 559.30$ PV of ESOP 960.72$ Minority Interest Liabilities 17.00$ Value of Equity 43,371.89$ Number of Shares 190.33 EP Stock Price Valuation 227.88$ Time Adjusted 229.11$ per share

Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending 2019A 2020E 2021E 2022E 2023E CV (2024E)

EPS A 12.04$ 10.79$ 11.33$ 11.70$ 12.06$ 12.47$

Key Assumptions CV growth 2.00% CV ROE 14.97% Cost of Equity 6.34%

Future Cash Flows P/E Multiple (CV Year) 19.95 EPS (CV Year) 12.47$ Future Stock Price 248.63$ Dividends Per Share 2.08$ 3.24$ 3.40$ 3.51$ 3.62$ Future Cash Flows 2.08$ 3.24$ 3.40$ 3.51$ 3.62$ 248.63$ Periods 1 2 3 4 4 Discounted Cash Flows 3.045$ 3.006$ 2.919$ 2.829$ 194.405$

Intrinsic Value 206.20$ Time Adjusted 207.32$ per share

Constellation BrandsRelative Valuation Models

EPS EPSTicker Company Price 2019E 2020E P/E 19 P/E 20TAP Molson Coors $60.37 $4.77 $4.95 12.66 12.20 BUD Anheuser-Busch $83.64 $3.44 $4.54 24.31 18.42 SAM Boston Beer $290.03 $8.62 $9.85 33.65 29.44 BF.B Brown Forman $53.59 $1.71 $1.82 31.34 29.45

Average 25.49 22.38

STZ Constellation Brands $191.17 $10.79 $11.33 17.7 16.9

Implied Relative Value: P/E (EPS19) $ 275.09 P/E (EPS20) 253.54$ PEG (EPS19) 81.63$ PEG (EPS20) 71.48$

Constellation BrandsKey Management Ratios

Fiscal Years Ending 2017 2018 2019 2020E 2021E 2022E 2023E CV (2024E)

Liquidity RatiosCurrent Ratio (Current Assets/ Current Liabilities) 1.20 1.79 1.16 1.25 1.62 2.06 2.51 2.27Quick Ratio ((Cash Equivalents + AR) / Current Liabilities) 0.34 0.45 0.30 0.39 0.74 1.09 1.48 1.57Cash Ratio (Cash & Cash Equivalents) / Current Liabilities) 0.07 0.05 0.03 0.13 0.48 0.81 1.19 1.38

Activity or Asset-Management RatiosTotal Asset Turnover (Sales / Total Assets) 0.43 0.41 0.30 0.32 0.31 0.30 0.30 0.27Fixed Asset Turnover (Sales / Fixed Assets) 1.08 0.93 0.58 0.58 0.58 0.58 0.57 0.56Inventory Turnover (Sales / Inventory) 4.12 4.00 4.17 3.31 3.31 3.31 3.31 3.31

Financial Leverage RatiosDebt-To-Equity (Total Liabilities / Stockholder's Equity) 1.70 1.55 1.28 1.43 1.40 1.35 1.31 1.40Equity Ratio (Total Equity / Total Assets) 0.37 0.39 0.44 0.41 0.42 0.43 0.43 0.42Debt Ratio (Total Debt / Total Assets) 0.46 0.46 0.44 0.44 0.44 0.44 0.43 0.46

Profitability RatiosGross Margin (Gross Profit / Sales) 43.77% 45.84% 45.93% 46.95% 46.71% 46.63% 46.48% 46.41%Operating Margin (Operating Income / Sales) 29.76% 27.44% 27.15% 28.97% 28.73% 28.65% 28.50% 28.43%Net Profit Margin (Net Income / Sales) 19.04% 27.85% 38.68% 21.73% 21.68% 21.47% 21.27% 21.12%Return on Assets (Net Income / Total Assets) 8.25% 11.29% 11.75% 7.02% 6.79% 6.54% 6.28% 5.75%Return on Equity (Net Income / Stockholder's Equity) 22.29% 28.76% 26.77% 17.05% 16.27% 15.35% 14.52% 13.83%

Payout Policy RatiosClass A Dividend Payout Ratio (Dividend Class A / EPS) 20.54% 17.28% 16.21% 30.00% 30.00% 30.00% 30.00% 30.00%Class B Dividend Payout Ratio (Dividend Class B / EPS) 20.37% 17.20% 16.15% 29.37% 29.37% 29.37% 29.37% 29.37%Total Payout Ratio ((Dividend + Stock Repurchases) / Net Income) 20.58% 17.27% 16.30% 54.70% 53.77% 53.08% 52.44% 51.75%

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol STZCurrent Stock Price $191.17Risk Free Rate 2.48%Current Dividend Yield 1.55%Annualized St. Dev. of Stock Returns 33.21%

Average Average B-S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedRange 1 7,444,701 56.33 4.30 129.05$ 960,716,691$ Range 2 -$ Total 7,444,701 56.33$ 4.30 141.18$ 960,716,691$

Present Value of Operating Lease Obligations (2019) Present Value of Operating Lease Obligations (2018) Present Value of Operating Lease Obligations (2017)

Operating Operating OperatingFiscal Years Ending Leases Fiscal Years Ending 229.108882126568 Leases Fiscal Years Ending Feb. 28 Leases2019 52 2018 53.6 2017 41.62020 52 2019 52 2018 462021 42.7 2020 52 2019 462022 42.7 2021 42.7 2020 39.32023 38 2022 42.7 2021 39.3Thereafter 278.3 Thereafter 316.3 Thereafter 285.5Total Minimum Payments 505.7 Total Minimum Payments 559.3 Total Minimum Payments 497.7Less: Interest 125 Less: Interest 141 Less: Interest 126PV of Minimum Payments 381 PV of Minimum Payments 418 PV of Minimum Payments 371Implied Interest on Operating Leases 18 Implied Interest on Operating Leases 20 Implied Interest on Operating Leases 18

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 4.84% Pre-Tax Cost of Debt 4.84% Pre-Tax Cost of Debt 4.84%Number Years Implied by Year 6 Payment 7.3 Number Years Implied by Year 6 Payment 7.4 Number Years Implied by Year 6 Payment 7.3

Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment1 52 49.6 1 53.6 51.1 1 41.6 39.72 52 47.3 2 52 47.3 2 46 41.93 42.7 37.1 3 52 45.1 3 46 39.94 42.7 35.3 4 42.7 35.3 4 39.3 32.55 38 30.0 5 42.7 33.7 5 39.3 31.06 & beyond 38 181.4 6 & beyond 42.7 205.8 6 & beyond 39.3 186.3PV of Minimum Payments 380.7 PV of Minimum Payments 418.4 PV of Minimum Payments 371.3

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 7.445Average Time to Maturity (years): 4.30Expected Annual Number of Options Exercised: 1.731

Current Average Strike Price: 56.33$ Cost of Equity: 6.34%Current Stock Price: $191.17

2020E 2021E 2022E 2023E CV 2024EIncrease in Shares Outstanding: 1.731 1.731 1.731 1.731 1.731Average Strike Price: 56.33$ 56.33$ 56.33$ 56.33$ 56.33$ Increase in Common Stock Account: 97.53 97.53 97.53 97.53 97.53

Change in Treasury Stock 504 504 504 504 504Expected Price of Repurchased Shares: $191.17 200.34$ 209.95$ 220.01$ 230.56$ Number of Shares Repurchased: 2.64 2.52 2.40 2.29 2.19

Shares Outstanding (beginning of the year) 168 167 166 166 165Plus: Shares Issued Through ESOP 1.73 1.73 1.73 1.73 1.73Less: Shares Repurchased in Treasury 2.64 2.52 2.40 2.29 2.19 Shares Outstanding (end of the year) 167.16 166.37 165.70 165.14 164.69

229.11$ 4.50% 5.00% 5.50% 5.80% 6.00% 6.25% 6.50%1.25% 314.96$ 260.94$ 219.68$ 199.04$ 187.13$ 173.31$ 160.82$ 1.50% 336.86$ 276.02$ 230.42$ 207.90$ 194.99$ 180.09$ 166.68$ 1.75% 362.75$ 293.41$ 242.60$ 217.85$ 203.77$ 187.61$ 173.15$ 2.00% 393.81$ 313.70$ 256.51$ 229.11$ 213.65$ 196.02$ 180.35$ 2.25% 431.78$ 337.68$ 272.57$ 241.95$ 224.85$ 205.48$ 188.39$ 2.50% 479.24$ 366.46$ 291.30$ 256.74$ 237.65$ 216.20$ 197.43$ 2.75% 540.26$ 401.63$ 313.44$ 273.95$ 252.42$ 228.45$ 207.69$

229.11$ 3.50% 4.00% 4.50% 4.84% 5.00% 5.50% 6.00%6.00% 244.50$ 244.72$ 244.93$ 245.06$ 245.13$ 245.31$ 245.49$ 8.00% 237.35$ 237.53$ 237.70$ 237.81$ 237.86$ 238.01$ 238.15$

10.00% 230.21$ 230.34$ 230.48$ 230.56$ 230.60$ 230.71$ 230.82$ 10.40% 228.78$ 228.91$ 229.03$ 229.11$ 229.15$ 229.25$ 229.36$ 12.00% 223.06$ 223.16$ 223.25$ 223.31$ 223.33$ 223.42$ 223.49$ 14.00% 215.91$ 215.97$ 216.02$ 216.05$ 216.07$ 216.12$ 216.16$ 16.00% 208.76$ 208.78$ 208.79$ 208.80$ 208.81$ 208.82$ 208.83$

229.11$ 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.25%0.75% 219.03$ 220.00$ 220.98$ 221.95$ 222.93$ 223.92$ 224.90$ 1.00% 221.37$ 222.36$ 223.34$ 224.33$ 225.32$ 226.32$ 227.32$ 1.25% 223.72$ 224.72$ 225.72$ 226.72$ 227.72$ 228.73$ 229.74$ 1.50% 226.08$ 227.09$ 228.10$ 229.11$ 230.12$ 231.14$ 232.16$ 1.75% 228.44$ 229.46$ 230.48$ 231.51$ 232.53$ 233.56$ 234.60$ 2.00% 230.81$ 231.84$ 232.87$ 233.91$ 234.95$ 235.99$ 237.03$ 2.25% 233.18$ 234.22$ 235.27$ 236.32$ 237.37$ 238.42$ 239.48$

229.11$ 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.25%4.75% 345.75$ 347.20$ 348.65$ 350.11$ 351.57$ 353.03$ 354.50$ 5.00% 309.74$ 311.06$ 312.38$ 313.70$ 315.03$ 316.36$ 317.69$ 5.25% 279.28$ 280.49$ 281.69$ 282.90$ 284.12$ 285.33$ 286.55$ 5.67% 237.47$ 238.52$ 239.57$ 240.63$ 241.69$ 242.75$ 243.81$ 6.00% 210.79$ 211.74$ 212.70$ 213.65$ 214.61$ 215.57$ 216.54$ 6.25% 193.35$ 194.24$ 195.13$ 196.02$ 196.91$ 197.81$ 198.71$ 6.50% 177.85$ 178.68$ 179.51$ 180.35$ 181.18$ 182.02$ 182.86$

229.11$ 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25%4.75% 344.90$ 346.63$ 348.37$ 350.11$ 351.86$ 353.61$ 355.36$ 5.00% 308.96$ 310.54$ 312.12$ 313.70$ 315.29$ 316.88$ 318.47$ 5.25% 278.57$ 280.01$ 281.45$ 282.90$ 284.36$ 285.81$ 287.27$ 5.67% 236.84$ 238.10$ 239.36$ 240.63$ 241.90$ 243.17$ 244.44$ 6.00% 210.22$ 211.36$ 212.51$ 213.65$ 214.80$ 215.96$ 217.11$ 6.25% 192.81$ 193.88$ 194.95$ 196.02$ 197.09$ 198.17$ 199.25$ 6.50% 177.35$ 178.34$ 179.34$ 180.35$ 181.35$ 182.36$ 183.37$

229.11$ 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.75%11.00% 193.47$ 200.82$ 209.09$ 218.44$ 229.11$ 241.39$ 255.68$ 12.00% 196.01$ 204.05$ 213.08$ 223.31$ 234.97$ 248.39$ 264.01$ 13.00% 198.15$ 206.78$ 216.46$ 227.42$ 239.92$ 254.31$ 271.06$ 13.46% 199.04$ 207.90$ 217.85$ 229.11$ 241.95$ 256.74$ 273.95$ 14.00% 200.00$ 209.12$ 219.36$ 230.95$ 244.17$ 259.39$ 277.10$ 15.00% 201.59$ 211.14$ 221.87$ 234.01$ 247.85$ 263.79$ 282.34$ 16.00% 202.99$ 212.92$ 224.07$ 236.68$ 251.07$ 267.64$ 286.92$

CV ROIC

WACC

CV NOPLAT Growth

Pre-Tax Cost of Debt

Marginal Tax Rate

Growth in Cases Sold (Beer)

Growth in Revenue Per Case (Beer)

Growth in Cases Sold (Beer)

WACC

Growth in Revenue Per Case (Wine & Spirits)

WACC

CV Growth of NOPLAT