Amidst a challenging market environment, Brown-Forman Corp (BF.B, Financial) has experienced a daily loss of 2.33% and a significant 3-month decline of 18.75%. Despite these short-term setbacks, the company's Earnings Per Share (EPS) stands at $1.59, raising an important question for value investors: is Brown-Forman currently modestly undervalued? This article aims to delve into the company's valuation, providing a comprehensive analysis that will inform investors about the stock's potential.
Company Introduction
Brown-Forman Corp (BF.B, Financial), a renowned U.S.-based manufacturer of premium distilled spirits, is best known for its flagship Tennessee whiskey brand Jack Daniel's and other bourbon brands like Woodford Reserve and Old Forester. With a diverse portfolio that includes tequila, vodka, rum, gin, and premium wines, Brown-Forman generates approximately 47% of its sales domestically, while Europe, Australia, and Latin America contribute significantly to its international revenues. With a current stock price of $57.02 and a market cap of $27.60 billion, the company's stock appears to be trading below its Fair Value (GF Value) of $80.46, suggesting a potential undervaluation.
Summarize GF Value
The GF Value is an exclusive metric that represents the intrinsic value of a stock, considering historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line offers a visual representation of the stock's fair trading value. When a stock's price significantly diverges from the GF Value Line, it indicates potential overvaluation or undervaluation, influencing future returns. Currently, Brown-Forman's stock is considered modestly undervalued, hinting at a promising long-term return that could surpass the company's business growth.
Financial Strength
Before investing, assessing a company's financial strength is crucial to avoid the risk of permanent loss. Brown-Forman's cash-to-debt ratio of 0.14, although lower than 71.5% of its peers in the Beverages - Alcoholic industry, still reflects a fair financial strength rating of 6 out of 10.
Profitability and Growth
Profitable companies, especially those with consistent long-term profitability, are generally safer investments. Brown-Forman has maintained profitability over the past decade, with an impressive operating margin of 26.09%, ranking higher than 87.14% of its industry counterparts. The company's profitability score is a robust 8 out of 10. However, its growth metrics, with an average annual revenue increase of 7.9%, suggest a mixed performance when compared to industry peers.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to gauge profitability. Brown-Forman's ROIC of 14.54% exceeds its WACC of 8.41%, indicating value creation for shareholders.
Conclusion
Overall, Brown-Forman (BF.B, Financial) appears to be modestly undervalued, with fair financial health and strong profitability. While its growth ranks below some industry counterparts, the company's solid ROIC suggests efficient capital utilization. For a deeper understanding of Brown-Forman's financials, interested investors can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
