Investors often grapple with the challenge of determining the true value of a stock. For Brown-Forman Corp (BF.B, Financial), a recent dip of -2.33% in a single day and a more substantial -18.73% loss over the past three months raises the question: Is the stock modestly undervalued? With an Earnings Per Share (EPS) of $1.59, we delve into a valuation analysis to uncover the stock's intrinsic worth. Join us as we explore the financial intricacies of Brown-Forman (BF.B).
Company Introduction
Brown-Forman Corp (BF.B, Financial) is a prominent U.S.-based manufacturer of premium distilled spirits, boasting a lucrative portfolio led by the world-renowned Tennessee whiskey brand Jack Daniel's, along with bourbon favorites Woodford Reserve and Old Forester. The company's product range also extends to tequila, vodka, rum, gin, and premium wines. With 47% of sales stemming from the U.S. market, Brown-Forman also enjoys a strong international presence, particularly in Europe, Australia, and Latin America. The Brown family maintains a tight grip on the company, holding over 50% of the economic interests and voting power.
Comparing the current stock price of $57.02 to the GF Value of $80.42, a measure of fair value, we initiate a deep dive into the financial health and potential of Brown-Forman.
Summarize GF Value
The GF Value is a unique valuation tool that calculates the intrinsic value of a stock. This calculation incorporates historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and estimates of future business performance. The GF Value Line provides a visual representation of the stock's fair trading value. When a stock's price significantly exceeds this line, it may be overvalued, suggesting a potential decline in future returns. Conversely, if the price is well below the GF Value Line, the stock could be undervalued, indicating a possibility of higher future returns.
At its current market cap of $27.60 billion, Brown-Forman (BF.B, Financial) appears to be modestly undervalued. This suggests that the long-term return on its stock could outpace the company's business growth.
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Financial Strength
Investing in a company with robust financial strength mitigates the risk of capital loss. Key indicators such as the cash-to-debt ratio and interest coverage are essential in assessing a company's financial resilience. Brown-Forman's cash-to-debt ratio stands at 0.14, which is lower than 72% of its peers in the Beverages - Alcoholic industry. Despite this, the company's financial strength is deemed fair with a GuruFocus ranking of 6 out of 10.
Profitability and Growth
Profitable companies, especially those with consistent performance, pose less investment risk. Brown-Forman has maintained profitability for the past decade, with a remarkable operating margin of 26.09%, ranking better than 87.2% of its industry counterparts. With a $4.30 billion revenue and an Earnings Per Share (EPS) of $1.59 over the past twelve months, the company's profitability ranks at a robust 8 out of 10 according to GuruFocus.
Growth is a vital valuation aspect, as it is closely tied to long-term stock performance. Brown-Forman's average annual revenue growth rate is 7.9%, which is commendable within its industry. However, the 3-year average EBITDA growth rate of 0.6% falls short compared to industry standards.
ROIC vs WACC
Evaluating a company's profitability can also be done by comparing its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). When ROIC surpasses WACC, it indicates that the company is generating value for its shareholders. Brown-Forman's ROIC over the past year stands at 14.54, exceeding its WACC of 8.4, signaling effective capital utilization.
Conclusion
In summary, Brown-Forman (BF.B, Financial) is currently trading at a price that suggests it is modestly undervalued. The company's financial health is fair, and its profitability remains strong. Despite its growth ranking lower than some competitors, the potential for future returns appears promising. For a more detailed financial overview, interested investors can review Brown-Forman's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
