04:36 AM EDT, 04/12/2024 (MT Newswires) -- (Updates with analyst comments in the first and last five paragraphs.)

Constellation Brands' ( STZ ) free cash flow growth will be driven by steady market share gains in its beer business and margin expansion from low-end wine divestitures, according to a note from D.A. Davidson late Thursday following the company's fiscal Q4 results.

The company reported fiscal Q4 non-GAAP earnings Thursday of $2.26 per diluted share, compared with $1.98 a year earlier.

Analysts surveyed by Capital IQ expected $2.10.

Net sales for the quarter ended Feb. 29 was $2.14 billion, compared with $2 billion a year earlier.

Analysts surveyed by Capital IQ expected $2.10 billion.

For full-year fiscal 2025, the company expects non-GAAP EPS of $13.50 to $13.80. Analysts surveyed by Capital IQ are expecting $13.43.

In the high-end beer market, import beers are among the fastest growing categories, and Constellation's two largest import brands, Corona and Modelo, are driving more than 80% of all US high-end import sales growth, the D.A. Davidson note said, citing market research firm IRI. Constellation will likely "sustain" beer sales growth in the 7% to 9% range over the medium term.

Constellation's exit from the lower end of the price spectrum in the wine business left the remaining portfolio "better-positioned at the higher end," Senior Research Analyst Eli Sanders said in the note.

Given that higher price points typically bring higher margins, Sanders expects the company to continue expanding its operating margins over the next few years. "Growth in the US alcoholic beverage industry, today, is driven by higher-end price points as consumers increasingly look to 'trade-up,' and STZ is positioned squarely to capitalize on this trend."

Sanders also said Constellation will likely limit mergers and acquisition activity after a period of "mixed success," which will free up capital to return to shareholders.

The analyst increased his 12-month price target on the shares to $309, from the previous $276 per share. STZ was up less than 1% in Friday's premarket activity, to about $270, at last look.