You Don't Know Jack
While Brown-Forman's iconic Jack Daniel's brand is the cornerstone of its wide moat, we believe the firm's shares are currently overvalued.
Based in Kentucky, Brown-Forman (BF.B) is a 142-year-old, family-owned premium spirits manufacturer with a portfolio of more than 25 brands. But Jack Daniel's, which accounts for almost 50% of Brown-Forman's volumes, is the linchpin behind the company's wide economic moat. Jack Daniel's provides both intangible (strong brand) and tangible (aging process and distribution system) barriers to entry that provide Brown-Forman's sustainable competitive advantage.
Strong Brands + Aged Spirits = Competitive Advantage
We have increased our moat rating for Brown-Forman to wide from narrow,largely due to the competitive advantages enjoyed by its iconic Jack Daniel's brand of Tennessee whiskey. Federal regulations mandate that bourbon and Tennessee whiskey be aged for at least two years in new charred oak barrels. Consequently, roughly half of the company's inventories are barreled whiskeys waiting to mature. While this duration is notably less than premium scotches, it nonetheless provides the company with opportunity to smooth out commodity inflation with steadily increasing prices, thereby keeping gross margins steady.
Thomas Mullarkey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.