RI: Premium Positioning And Global Brands Will Drive Resilient Long-Term Expansion

Key Takeaways

• Growth in emerging markets and ongoing premiumization are expected to drive long-term revenue and margin expansion through higher-value brand offerings.
  
• Portfolio restructuring, cost-saving initiatives, and digital transformation efforts are set to enhance profitability and withstand short-term market challenges.
  
• Declining demand, regulatory pressures, currency volatility, and shifting consumer trends threaten sustained growth, margin stability, and resilience in Pernod Ricard's major markets.

Catalysts

Produces and sells wines and spirits worldwide.

• The company is poised to benefit from rising spirits consumption across emerging markets, particularly India, Southeast Asia, and Africa, driven by demographic and income growth; this is expected to accelerate long-term top-line revenue as these regions continue to urbanize and expand their middle class.
  
• Sustained momentum in premiumization and innovation-evidenced by successful launches in ready-to-drink, non-alcoholic, and premium spirits segments-positions Pernod Ricard to capture higher average selling prices and grow net margins, supported by ongoing consumer appetite for higher-value, experiential brands.
  
• Strategic restructuring of the portfolio, including divestment of low-margin assets (e.g., Imperial Blue and the Wines business), alongside intensified focus on higher-margin premium brands, is expected to be immediately accretive to margins and profitability, even as it temporarily weighs on revenue.
  
• A new phase of operational efficiency, with a targeted €1 billion in further cost savings by 2029, and an already completed €900 million program, is expected to support ongoing organic margin expansion and improved free cash flow conversion (targeting ~80%), enhancing earnings resilience despite short-term headwinds.
  
• Growing investment in digital transformation, e-commerce channels, and agile, simplified organization structures enables Pernod Ricard to better reach evolving consumer segments, maximize marketing ROI, and strengthen future revenue growth as beverage alcohol sales shift increasingly online.

Pernod Ricard Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pernod Ricard's revenue will decrease by 0.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.8% today to 17.0% in 3 years time.
• Analysts expect earnings to reach €1.8 billion (and earnings per share of €7.55) by about September 2028, up from €1.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €2.3 billion in earnings, and the most bearish expecting €1.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.9x on those 2028 earnings, up from 15.4x today. This future PE is lower than the current PE for the GB Beverage industry at 19.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.98%, as per the Simply Wall St company report.

Pernod Ricard Future Earnings Per Share Growth

Risks

• Sustained declines and ongoing weakness in key mature markets such as the U.S. and China-due to muted consumer confidence, economic headwinds, regulatory interventions (e.g., tariffs, official consumption bans), and inventory adjustments-raise concerns about Pernod Ricard's ability to drive long-term revenue and profit growth as these historically high-margin markets remain soft.
  
• Escalating regulatory pressures, including substantial tax increases (e.g., 50% excise increase in Maharashtra, India) and ongoing official bans on alcohol consumption for public officials in China, threaten both sales volumes and net margins by compressing demand and complicating local execution in several large markets.
  
• Currency volatility and adverse FX movements (notably U.S. dollar/euro) have led to significant reported declines in sales, profit from recurring operations, and EBIT, creating ongoing risks to group earnings and margin expansion in the medium and long term.
  
• A more challenging pricing environment, with management explicitly noting difficulty in taking price in key markets (outside of hyperinflation regions), alongside negative mix effects, may cap Pernod Ricard's ability to deliver organic top-line growth and stable or expanding net margins.
  
• The global trend toward moderation, coupled with heightened health awareness, potential trade-downs during periods of lower consumer purchasing power, and the rise of low/zero-alcohol alternatives, risks structurally slower volume growth and increased reliance on premiumization-which could expose the company to demand volatility and margin compression during downcycles.

Valuation

• The analysts have a consensus price target of €110.368 for Pernod Ricard based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €156.0, and the most bearish reporting a price target of just €87.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €10.8 billion, earnings will come to €1.8 billion, and it would be trading on a PE ratio of 17.9x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of €99.26, the analyst price target of €110.37 is 10.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.