Brown-Forman: Upgrade to Buy After FY24 Results, Return to March 2020 Lows
Company Update (BF/B US) (Buy): We believe the “real” trailing P/E is now below 22x, cheap given EPS will likely grow at high-single-digits.
Highlights
We upgrade our rating to Buy after shares have fallen 19% since March.
Net sales fell 1% organically in FY24, but after a 6 ppt hit from de-stocking.
Slowdown is cyclical and temporary; there are company-specific one-offs.
Management guides to FY25 growth, comps get easier after the summer.
At $43.92, we see a 53% total return (15.3% IRR) by April 2027.
Introduction
We are upgrading our rating on Brown-Forman from Neutral to Buy, following a further share price decline after FY24 results on Wednesday (June 5); the share price is now 5.5% lower than its pandemic low in March 2020:
Brown-Forman Class B Share Price (Last 5 Years)
NB. The chart shows weekly prices; lowest close was at $46.48 on 23-Mar-20. Source: Google Finance (06-Jun-24).
(All references to Brown-Forman share prices here are based on the more liquid and cheaper non-voting Class B.)
Brown-Forman shares have lost 28.3% (after dividends) since we published our first research on Brown-Forman with a Neutral rating in March 2023, and the share price is down 19.3% since we last reiterated our Neutral rating in March this year. (We have done better with Diageo, which has been part of our “Select 15” model portfolio, though we were still too early there, and the position currently shows an unrealised loss of ~12% in dollars.)
As we described in our review of Diageo earlier this week, shares of Spirits companies are currently at multi-year lows, and we believe investors have mistakenly extrapolated the weak growth in recent results, in which declines were amplified by changes in inventory levels, to be the long-term trend. We have initiated a new position in Brown-Forman after results and also added significantly to our existing Diageo position this week.
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