Alcohol stocks have been hammered in recent years as investors become increasingly concerned that drinking is going out of fashion. In a research note released on Thursday, TD Cowen analysts said that fear may be overblown.

Instead of a permanent consumer retreat, the recent downturn in alcohol consumption looks more like a cyclical reset made worse by inflation and weaker discretionary income, especially among younger consumers, wrote TD Cowen analyst Seamus Cassidy and his colleagues.

U.S. alcohol volumes have fallen for four straight years. The amount of alcohol sold declined 4.5% in 2025 after falling 3.2% in 2024, according to IWSR data. Gallup data also showed self-reported drinking rates dropping to 54% in 2025, the lowest level in 86 years of polling.

Shares in Constellation Brands have fallen 43% over the past two years, Boston Beer lost 37%, and Molson Coors declined 20%, while the American Depositary Receipt of London-based alcohol giant Diageo is down about 34% over the same period.

Indeed, consumers -- especially younger adults -- are drinking less. Higher living costs and weaker purchasing power have led to fewer bar nights and parties. Meanwhile, today's wellness culture has made moderation more socially acceptable.

These pressures are real, said the analysts, but not necessarily permanent. Reduced alcohol spending is a result of reduced overall spending, according to them, and the pressure might ease as incomes improve and young consumers age into adulthood.

The analysts noted that alcohol's share of nondurable goods spending has stayed relatively stable, at about 5.5% in 2025. That's roughly in line with levels between 2022 and 2024, and above the long-term average of 5% from 1990 through 2025.

We've seen a similar retreat of alcohol consumption in the 1980s and early 1990s, when drunken-driving laws tightened and legal drinking age rose to 21. But consumption recovered in the following years as the economic backdrop improved.

"The primary driver, in our view, was a more supportive macro backdrop that lifted discretionary spending," wrote the analysts, who believe Gen Z consumers could follow a similar pattern.

To be sure, this doesn't mean there is a boom in alcohol consumption. TD Cowen still forecasts U.S. alcohol revenue to grow just 1.3% annually from 2025 through 2030. But the analysts believe that expectations have become too bleak for alcohol stocks.

Alcohol companies now trade at roughly 14.5 times forward earnings, according to the analysts, down from a five-year average of 20.8 times.

"With valuations already baking in structural concerns, even modest volume stabilization could support upside for alcohol stocks," wrote the analysts.

Constellation Brands and Diageo could present some of the most attractive opportunities, according to the analysts, who rated both stocks as Buy.

Constellation could benefit from World Cup demand and strength in Mexican imports, they wrote, while Diageo could benefit from the cost cuts and organizational changes under a new CEO, which would allow more investment into growth.

Alcohol stocks may not need a full demand recovery. After the steep selloff, a smaller bump, or better-than-expected results, could be enough to lift share prices.

Write to Evie Liu at evie.liu@barrons.com

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June 26, 2026 17:41 ET (21:41 GMT)

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