Amidst a challenging market, Brown-Forman Corp (BF.B, Financial) has experienced a daily loss of -2.4% and a 3-month decline of -9.52%. However, with an Earnings Per Share (EPS) of $2.01, investors are prompted to consider whether the stock is modestly undervalued. This article delves into the valuation analysis of Brown-Forman, aiming to provide a clear answer and encourage readers to explore the detailed analysis that follows.
Company Introduction
Brown-Forman Corp (BF.B, Financial), a distinguished name in the premium distilled spirits industry, is known for its iconic Tennessee whiskey brand, Jack Daniel's, along with other bourbon brands like Woodford Reserve and Old Forester. Generating nearly 70% of its revenue from whiskey, the company also has a diverse portfolio including tequila, vodka, rum, gin, and premium wines. With 47% of sales originating from the US, Brown-Forman also has a significant international presence in Europe, Australia, and Latin America. Controlled by the Brown family, which holds over 50% of the economic interests and 67% voting power, the company stands firm with a market cap of $25 billion. At a glance, the stock price of $52.43 seems to trail behind the GF Value of $73.98, suggesting a potential undervaluation.
Summarize GF Value
The GF Value is a unique intrinsic value measure, reflecting what Brown-Forman's stock should ideally trade at. This value is meticulously calculated based on historical trading multiples, an adjustment factor from GuruFocus for past performance and growth, and future business performance projections. When the stock price hovers significantly below the GF Value Line, it indicates a potential for higher future returns. Currently, Brown-Forman (BF.B, Financial) is positioned as modestly undervalued, hinting at a promising outlook for long-term investors.
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Financial Strength
Investors must scrutinize a company's financial strength to sidestep potential capital loss. Key indicators such as the cash-to-debt ratio, which for Brown-Forman stands at 0.17, provide insights into the company's financial robustness. Although this ratio is lower than 66.67% of its peers in the Beverages - Alcoholic industry, Brown-Forman's overall financial strength is fair, with a score of 6 out of 10.
Profitability and Growth
Consistent profitability is less risky and often a hallmark of a sound investment. Brown-Forman's impressive operating margin of 31.39% outperforms 92.45% of its industry counterparts, reflecting its strong profitability, which is rated 9 out of 10. On the growth front, the company's average annual revenue growth of 7.9% is commendable, although its 3-year average EBITDA growth rate of 0.6% trails behind many in the industry.
ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) serves as another profitability gauge. Brown-Forman's ROIC of 15.78% is more than double its WACC of 7.5%, indicating effective capital management and value creation for shareholders.
Conclusion
In conclusion, Brown-Forman (BF.B, Financial) presents signs of being modestly undervalued. The company's financials are fair, and its profitability is robust. However, its growth could be more competitive within the Beverages - Alcoholic industry. For a more detailed financial overview, interested investors can review Brown-Forman's 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.
