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Brown-Forman Corp Class B BF.B

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Morningstar’s Analysis

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U.S. and Developed Markets Remain Brown-Forman's Saving Grace in Q2; Shares Priced for Perfection

Analyst Note

| Nicholas Johnson, CFA |

The stage was set for another knockout showing from wide-moat Brown-Forman, with the shares near 52-week highs heading into the fiscal second-quarter earnings release. However, results were lukewarm, with revenue ahead and earnings slightly behind CapIQ consensus. Strength in the United States continues to mitigate top-line headwinds in other geographies, but margins are starting to be less inoculated against the COVID-19 crisis. We’ll likely raise our $64 fair value estimate modestly to reflect time value as well as additional financial color to be divulged in the 10-Q filing. Still, we believe the current valuation is stretched, with the implied assumptions sitting in the tails of the distribution of potential outcomes for the firm.

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Company Profile

Business Description

Brown-Forman is the largest U.S.-domiciled producer of distilled spirits. The firm reports only a single operating segment, and whiskey represents its primary business driver at over 75% of revenue, undergirded by the Jack Daniel’s brand as well as bourbons such as Woodford Reserve and Old Forrester. Notable nonwhiskey offerings include vodkas such as Finlandia and tequilas such as el Jimador and Herradura. The firm operates globally, with products sold in more than 170 countries, and adapts its route-to-consumer model depending on regulation as well as the prevailing competitive dynamics in a given market. For example, it sells through distributors in the U.S., but operates its own logistics apparatus in many other countries. The company remains under the control of the Brown family.

850 Dixie Highway
Louisville, KY, 40210
T +1 502 585-1100
Sector Consumer Defensive
Industry Beverages - Wineries & Distilleries
Most Recent Earnings Oct 31, 2020
Fiscal Year End Apr 30, 2021
Stock Type Slow Growth
Employees 4,800