Morningstar Rating

Stock Research and Analysis

by R.J. Hottovy, CFA

Bulls Say

The spirits industry has seen a wave of acquisitions in recent years, including rival bourbon manufacturer Beam in 2014. Brown-Forman's valuation could fetch a premium in a potential M&A situation.
Compared with other spirits companies, Brown-Forman generates best-in-class returns on invested capital. Including goodwill, its ROICs tend to be in the high teens or low 20s, 100-200 basis points higher than Diageo's.
Brown-Forman has ample opportunity to increase volume via international expansion, flavor extensions, and increasing demand for its ready-to-drink offerings. Read more 

Bears Say

Although we don't expect any mishaps, brand concentration is a concern. Almost half of Brown-Forman's volume comes from Jack Daniel's products. Sustained weakness in this important brand would hurt the stock.
Alcohol is heavily taxed. Should governments drastically increase the excise tax on spirits, Brown-Forman's volume growth could fall short of expectations.
The Brown family maintains control of the company, holding approximately two thirds of the voting rights. Consequently, other shareholders are unable to exert influence over the company. Read more 

Management

Brown-Forman's managers have been exemplary stewards of shareholder capital. The company has been keenly focused on maximizing the potential of its Jack Daniel's family of brands and has made key divestments of noncore business lines in 2007 (consumer   Read more 

Profile

Based in Kentucky, Brown-Forman is a 144-year-old family-owned premium spirits manufacturer with a portfolio of more than 25 brands. In fiscal 2014, 36 million 9-liter cases   Read more 

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