Unveiling Brown-Forman (BF.B)'s Value: Is It Really Priced Right? A Comprehensive Guide

An in-depth analysis of Brown-Forman's intrinsic value, financial strength, and growth prospects.

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As of August 30, 2023, Brown-Forman Corp (BF.B, Financial) experienced a day's loss of -4.72%, with a 3-month gain of 12.47%. The company reported an Earnings Per Share (EPS) (EPS) of 1.63. Despite these figures, the question remains: is Brown-Forman (BF.B) modestly undervalued? This article delves into the valuation analysis of Brown-Forman, providing a comprehensive overview of its financial status and future prospects.

Company Introduction

Based in the U.S., Brown-Forman is a premium distilled spirits manufacturer, generating nearly 70% of its revenues from the whiskey category. Its well-known brands include Tennessee whiskey brand Jack Daniel's and bourbon brands Woodford Reserve and Old Forester. Besides whiskey, the company also manufactures and distributes tequila, vodka, rum, gin, and premium wines. Brown-Forman's sales are mainly from its home market (47%), with significant international revenues from Europe, Australia, and Latin America. The Brown family controls over 50% of the company's economic interests and voting power.

With a current stock price of $65.78, Brown-Forman (BF.B, Financial) has a market cap of $31.70 billion. This value is compared to the GF Value of $82.85, an estimation of the stock's fair value. The comparison suggests that Brown-Forman may be modestly undervalued.


Understanding the GF Value

The GF Value is a proprietary measure of a stock's intrinsic value, computed by GuruFocus using three factors: historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.

Based on the GF Value calculation, Brown-Forman (BF.B, Financial) stock appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.


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Financial Strength of Brown-Forman

Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it is crucial to review the financial strength of a company before deciding to buy its stock. A company's cash-to-debt ratio and interest coverage are good starting points for understanding its financial strength. Brown-Forman has a cash-to-debt ratio of 0.13, ranking lower than 76.59% of 205 companies in the Beverages - Alcoholic industry. GuruFocus ranks Brown-Forman's overall financial strength at 6 out of 10, indicating fair financial strength.


Profitability and Growth of Brown-Forman

Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Brown-Forman has been profitable 10 years over the past 10 years. Over the past 12 months, the company had revenues of $4.20 billion and an EPS of $1.63. Its operating margin of 26.66% ranks better than 88.04% of 209 companies in the Beverages - Alcoholic industry. Overall, GuruFocus ranks Brown-Forman's profitability as strong.

One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Brown-Forman is 7.9%, which ranks better than 60.8% of 199 companies in the Beverages - Alcoholic industry. However, its 3-year average EBITDA growth is 0.6%, ranking lower than 66.85% of 181 companies in the same industry.


Another method of determining a company's profitability is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Brown-Forman's ROIC is 15.72, and its WACC is 7.59.



Overall, Brown-Forman (BF.B, Financial) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks lower than 66.85% of 181 companies in the Beverages - Alcoholic industry. To learn more about Brown-Forman stock, you can check out its 30-Year Financials here.

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