What’s Next For Jack Daniels Maker Brown-Forman Stock After A 6% Fall Following A Mixed Q4?

BF.B: Brown Forman logo
BF.B
Brown Forman

Brown-Forman (NYSE: BF-B), known for its Jack Daniel’s Tennessee whiskey, recently reported its Q4 fiscal 2024 results (fiscal ends in April), with revenues missing and earnings exceeding the street estimates. The company reported revenue of $964 million and earnings of $0.56 per share, compared to the consensus estimates of $1.05 billion and $0.42, respectively. The company’s outlook for 2025 was broadly in line with expectations, with sales expected to rise between 2% and 4% on an organic basis, and a similar growth in operating income. The miss in top-line by a wide margin of around 8% didn’t sit well with investors, and the stock fell around 6% on Wednesday, June 5. After its recent fall, we think that BF-B stock looks undervalued. In this note, we discuss Brown-Forman’s stock performance, key takeaways from its recent results, and valuation.

Firstly, let us look at Brown-Forman’s stock performance in recent years. BF-B stock has suffered a sharp decline of 45% from levels of $80 in early January 2021 to around $45 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period. BF-B has had a poor run, with the stock losing value in each of the last three years. Returns for the stock were -8% in 2021, -10% in 2022, and -13% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that BF-B underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BF-B face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a recovery? From a valuation perspective, BF-B stock looks like it can see higher levels over time. The $57 average of analysts price estimate is around 30% above the current market price of $43.

Brown-Forman’s revenue of $964 million in Q4 was down 8% y-o-y. Jack Daniel’s Tennessee whiskey saw its volume decline by 10% in fiscal 2024, with the overall liquor portfolio volume down 8%. The distributor inventory was also down in high single-digits for Jack Daniel’s Tennessee whiskey. Much of this fall came from emerging markets, while travel retail saw a slight growth. The gross margin also expanded a robust 150 bps to 60.5%, and operating margin surged 710 bps to 33.8% in 2024, primarily due to a favorable product/mix and lower supply chain disruption related costs.

Overall, we think that after its recent fall, Brown-Forman stock looks attractive from a valuation perspective. It now trades at 5x trailing revenues, compared to the last three-year average of 8x.

While BF-B stock looks like it can see higher levels, it is helpful to see how Brown-Forman’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

 Returns Jun 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 BF-B Return -6% -25% 20%
 S&P 500 Return 1% 12% 138%
 Trefis Reinforced Value Portfolio 1% 5% 648%

[1] Returns as of 6/6/2024
[2] Cumulative total returns since the end of 2016

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