We came across a bullish thesis on Brown-Forman Corporation (BF.B) on Substack by Douglas Ott. In this article, we will summarize the bulls’ thesis on (BF.B). Brown-Forman Corporation (BF.B)’s share was trading at $44.41 as of Dec 6th. (BF.B)’s trailing and forward P/E were 20.95 and 23.98 respectively according to Yahoo Finance.
Brown-Forman (BF.B), known for its iconic American whiskey brands, including Jack Daniels and Woodford Reserve, has long been a stalwart in the spirits industry, delivering strong returns for shareholders due to its exceptional, multi-generational leadership. The company also boasts a portfolio of tequila brands such as El Jimador and Herradura. However, despite its strong brand reputation, Brown-Forman is currently facing significant challenges related to the post-COVID environment. Like many companies in the spirits sector, it is experiencing a “COVID hangover,” with reported and organic growth remaining flat or negative across its major categories. This slowdown can be attributed to the normalization of spirits sales following the COVID-induced surge in demand. During the pandemic, consumers stocked up on alcohol, resulting in a temporary spike in sales, but now many of those bottles are still sitting in cabinets, leading to weaker demand.
CEO Lawson Whiting has discussed this destocking issue, noting that while consumption patterns are expected to normalize, it is unclear when the effects of the excess inventory will subside. Additionally, inflationary pressures have compounded these challenges, increasing labor and material costs, while consumers are becoming more cautious with their discretionary spending. These headwinds have been reflected in Brown-Forman’s financial performance, with EBITDA margins declining from the mid-30s to 29.5%, and its EBITDA multiple dropping from a peak of 34.4x in June 2021 to 18.9x today. Consequently, the company’s stock price has slightly declined, reaching levels not seen since the COVID period.
Despite these short-term challenges, Brown-Forman remains a leading player in the spirits industry, with its premium brands positioned for long-term growth as global incomes rise and more people gain access to higher-quality products. While the current period of normalization may have lasted longer than expected, Brown-Forman’s established brands and strong market position still present an attractive opportunity for patient investors.
Brown-Forman Corporation (BF.B) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 24 hedge fund portfolios held (BF.B) at the end of the third quarter which was 28 in the previous quarter. While we acknowledge the risk and potential of (BF.B) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than (BF.B) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.