Company Reports

Remy Cointreau reported disappointing results for its December-ended third quarter of fiscal 2024, with a steep decline in cognac sales that missed our forecasts. The stock, however, responded positively, jumping by 15% in trading on Jan. 26, likely because management made positive comments about its expectations for a volume recovery in the fourth quarter. While investors may be relieved that cognac appears to be rebounding, the risk of a longer-term impairment of demand in China remains. We are reiterating our narrow moat rating and our EUR 119 fair value estimate, which assumes a recovery in the fourth fiscal quarter followed by mid-single-digit revenue growth in fiscal 2026 and beyond. The uncertain outcome of China's policy review relating to imported brandy limits our conviction in these forecasts. As such, we believe the remaining 15% upside to our valuation does not compensate investors sufficiently for the risk of a ban on cognac in China, although noise relating to the review may create attractive opportunities to build a position in the future.

Outside of the Chinese baijiu makers, we think Remy Cointreau possesses the most premium portfolio among our global beverages coverage. In particular, Louis XIII, the firm’s ultrapremium cognac brand, can sell at retail prices well into four figures, while Remy Martin XO retails at around $200 per 75 centiliter bottle. Together, these two brands accounted for 72% of Remy's 2022 revenue. Other parts of the portfolio also sell in premium price segments, including The Botanist gin and some of the line extensions of Bruichladdich, Remy's Islay whisky.

Outside of the Chinese baijiu makers, we think Remy Cointreau possesses the most premium portfolio among our global beverages coverage. In particular, Louis XIII, the firm’s ultrapremium cognac brand, can sell at retail prices well into four figures, while Remy Martin XO retails at around $200 per 75 centiliter bottle. Together, these two brands accounted for 72% of Remy's 2022 revenue. Other parts of the portfolio also sell in premium price segments, including The Botanist gin and some of the line extensions of Bruichladdich, Remy's Islay whisky.

We are initiating coverage of European distillers Remy Cointreau and Davide Campari-Milano with fair value estimates of EUR 119 and EUR 9 per share, respectively. These valuations are quite close to the current market prices, and we believe both companies, as well as the group as a whole, are fairly valued. Despite the recent selloff in the stocks, we suspect there is more pain ahead, and we recommend investors wait for a more attractive market valuation before allocating capital to this group.

We’re dropping our coverage of Remy Cointreau. Morningstar provides research on more than 1,500 publicly traded stocks, and we periodically revise our lists in response to client interest and changes in the business environment.

Remy Cointreau is steeped in tradition, with most of its drinks still produced in their places of provenance. While its crown jewel is the cognac business (representing north of 80% of profits), its portfolio holds many other brands boasting solid appeal in their home countries and a growing international presence. With trademarks that have endured for decades and several secular tailwinds, Remy has a long runway for growth, in our view.

Narrow-moat Remy Cointreau generated record profitability through first-half 2021, with the group reporting 33% operating margins (up 8.3 points annually) as on-trade volumes returned in Europe and as April price hikes bolstered the bottom line. The firm's liqueurs and spirits segment was surprisingly robust, with a mix shift toward margin-accretive brands (Cointreau, The Botanist, Malt Whiskey and Telmont) and operating leverage driving 23% segment margins, up 6.4% from 2020 levels. Though we expect management to plow back a portion of profits toward promotional spending as they scale up their e-commerce business, invest in upper funnel marketing for the aforementioned brands, and build out a more robust customer relationship management, or CRM, platform, gross margin leverage looks stickier--and prompts us to modestly pull forward our forecasts for margin expansion. While management maintained its 2030 targets for 72% (33%) gross (operating) margin, our revised 2025 forecast contemplates that those clock in at 71% and 32.6%, respectively (suggesting management conservatism), sustained premiumization, at-home consumption trends, and positive momentum in the spirits and liqueurs segment underpinning our view. Consistent with these changes, and time value of money, we expect to raise our EUR 143 fair value estimate by a mid- to high-single-digit percentage, though shares continue to look expensive, trading at a 30%-35% premium to our updated figure.

Remy Cointreau is steeped in tradition, with most of its drinks still produced in their places of provenance. While its crown jewel is the cognac business (87% of profits), its portfolio holds many other brands boasting solid appeal in their home countries and a growing international presence. With trademarks that have endured for decades and several secular tailwinds, Remy has a long runway for growth, in our view.

Remy Cointreau posted strong fiscal second-quarter earnings, with EUR 645 million in sales marking a 52% improvement from the year-ago period (excluding acquisitions and currency effects). Strength was broad geographically and across portfolio brands, with cognacs, liqueurs and spirits, and sales through affiliate channels up in the high-20% range (26.90% consolidated) against precoronavirus figures. We anticipate modestly increasing our top-line forecasts and slightly lowering near-term margins (due to elevated marketing spending and persistent supply chain pressures), though our long-term forecasts for high-single-digit revenue growth beyond fiscal 2022 and strengthening margins (to nearly 30% in 2026) remain largely intact. We expect to maintain our EUR 143 fair value estimate, leaving shares expensive at current prices.

Remy Cointreau is steeped in tradition, with most of its drinks still produced in their places of provenance. While its crown jewel is the cognac business (87% of profits), its portfolio holds many other brands boasting solid appeal in their home countries and a growing international presence. With trademarks that have endured for decades and several secular tailwinds, Remy has a long runway for growth, in our view.

Remy Cointreau is steeped in tradition, with most of its drinks still produced in their places of provenance. While its crown jewel is the cognac business (87% of profits), its portfolio holds many other brands boasting solid appeal in their home countries and a growing international presence. With trademarks that have endured for decades and several secular tailwinds, Remy has a long runway for growth, in our view.

With the shares of narrow-moat Remy Cointreau on a meaningful rally heading into the company's fiscal first-quarter sales update, investors were probably looking for not only a strong quarter, but also commentary from management suggesting robust demand. The firm delivered on both fronts, with its reported triple-digit organic growth quite impressive despite numerous extenuating factors (like soft comparisons and exceedingly low inventories heading into the fiscal year). Still, the stock’s tepid reaction to objectively strong results evinces, in our view, the increasingly fanciful long-term performance implied by the market valuation. We plan to increase our fair value estimate to around EUR 141 per share from EUR 136 to reflect time value as well as the strong commercial execution thus far this year. However, we suggest prospective investors remain on the sidelines, as we still don’t see current multiples as tenable longer term.

Remy Cointreau is steeped in tradition, with most of its drinks still produced in their places of provenance. While its crown jewel is the cognac business (87% of profits), its portfolio holds many other brands boasting solid appeal in their home countries and a growing international presence. With trademarks that have endured for decades and several secular tailwinds, Remy has a long runway for growth, in our view.

With narrow-moat Remy Cointreau having already reported full-year sales, we believe profits, the horizon to full recovery, and strategy were the main items on investors’ minds heading into its fiscal 2021 earnings print. With the stock riding a seemingly unbridled wave of momentum over the past few months, near- and long-term expectations were undoubtedly high. This was apparent from the mid-single-digit post-print decline in shares despite what we deemed to be solid results (ahead of our expectations on margins). Still, investor expectations will need a lot more tempering to knock the stock’s valuation multiples off the still-grandiose perch on which they rest. Ultimately, we plan to raise our fair value estimate to EUR 136 from EUR 118. This reflects time value (particularly as our model roll brings forward future cash flows), and modestly higher medium-term margins as the distiller is on a better-than-expected trajectory relative to its 2030 financial targets (calling for 72% gross margin and 33% adjusted operating margin). Nevertheless, with Remy and its distillation peers trading in the valuation stratosphere, we suggest investors look to brewers (like no-moat Molson Coors or wide-moat A-B InBev) for alcohol exposure.

With shares of narrow-moat Remy Cointreau on a tear heading into its fiscal full-year sales update, investors ostensibly expected continued robustness in its top-line recovery. The results were solid, with evidence of strong consumer takeaway for core brands, but with shares down modestly on the news, it looks like the market had loftier expectations. For our part, with consolidated sales almost exactly in line with our pre-print forecast (at EUR 1 billion), we plan to stand pat at our fair value estimate of EUR 118. While time value would’ve otherwise pushed our valuation up modestly, we will wait for the firm to report full-year results (in about a month’s time) before revisiting, as this release will give us a better feel for key operating barometers (like profitability and inventory levels) that are core to our model. Remy’s stock continues to trade at a multiple (52 times next year’s earnings) that we deem untenable, and so we think prospective investors should remain on the sidelines.

Remy Cointreau is steeped in tradition, with most of its drinks still produced in their places of provenance. While its crown jewel is the cognac business (85% of profits), its portfolio holds many other brands boasting solid appeal in their home countries and a growing international presence. With trademarks that have endured for decades and several secular tailwinds, Remy has a long runway for growth, in our view.

We didn’t expect many surprises heading into narrow-moat Remy Cointreau’s fiscal first-half earnings print, with the firm already disclosing sales and quite a narrow guidance range for operating profit a month ago. Still, despite overall results largely in line with our expectations, the segment breakdowns and management’s margin commentary likely piqued investor interest. Ultimately, we plan to raise our fair value estimate to EUR 115 from EUR 110 to reflect time value as well as modestly higher near-term profitability. Our long-term outlook (high-single-digit top-line growth and more than 28% adjusted operating margins) is unchanged, however. We continue to believe the assumptions required to justify today’s valuation reside in the tail of the spectrum of potential outcomes for Remy, with only a negligible probability of actually coming to fruition.

With shares of narrow-moat Remy Cointreau on a tear heading into its fiscal second-quarter sales update, investors ostensibly expected evidence of strong recovery across the firm’s main geographies. Overall, while there was sequential improvement, certain parts of the portfolio continue to struggle, and the horizon remains littered with uncertainty. We plan to hold our EUR 110 fair value estimate in place until the company reports full first-half results at the end of November (when year-to-date profitability will be divulged), as there may be some offsets to time value of money adjustments. Regardless, the lofty multiple at which shares currently trade is unwarranted, in our view. Opportunities in the distillation industry are sparse, but there are still pockets of value in brewing, for example in wide-moat, best-idea Constellation Brands and no-moat Molson Coors.

Remy Cointreau is steeped in tradition, with most of its drinks still produced in their places of provenance. While its crown jewel is the cognac business (85% of profits), its portfolio holds many other brands boasting solid appeal in their home countries and a growing international presence. With trademarks that have endured for decades and several secular tailwinds, Remy has a long runway for growth, in our view.

Management at narrow-moat Remy Cointreau had set the bar quite low heading into its fiscal first-quarter sales update, leaving investors with optimistic expectations. While the firm easily beat its guidance (which called for a decline of roughly 45%), the countervailing product and channel dynamics seemed like a net negative from our vantage point, particularly as it relates to profitability. We plan to raise our fair value estimate to EUR 110 from EUR 109 due to the time value of money. Nevertheless, we believe the market is now extrapolating a level of growth and margin profile that stretches credulity given the uncertainty the firm faces and view the shares as overvalued. In our opinion, opportunities in the distillation industry are sparse, but there are still pockets of value in brewing, for example in wide-moat, Best Idea Constellation Brands and no-moat Molson Coors.