Woodford Reserve Premium Launches And Global Expansion Will Strengthen Market Position

Key Takeaways

• Brown-Forman focuses on premiumization, product innovation, and ready-to-drink formats to boost revenue, margins, and capture premium market share.
  
• Workforce restructuring and strategic market expansion aim to enhance operational efficiency, distribution, and market penetration, potentially driving revenue and market share growth.
  
• Workforce reductions and competitive pressures in key markets could challenge Brown-Forman's margins, revenue growth, and market share amidst economic uncertainties.

Catalysts

Manufactures, distills, bottles, imports, exports, markets, and sells various alcoholic beverages.

• Brown-Forman is focusing on premiumization and product innovation, launching premium offerings such as Woodford Reserve Batchproof and Woodford Reserve Double Double Oak at prices above $100, potentially boosting revenue and margins through higher ASPs and capturing premium market share.
  
• The strategic workforce restructuring, including a 12% global reduction and the closure of the Louisville-based Brown-Forman Cooperage, is expected to deliver $70 million to $80 million in annualized savings while improving operational efficiency, potentially enhancing net margins and freeing up capital for growth investments.
  
• Expansion in emerging markets is driving organic net sales growth, notably in Brazil and Turkey, supported by premium whiskey demand and geographic market strategies, potentially contributing to revenue growth and market share gains.
  
• Brown-Forman's direct distribution initiatives in Japan and Italy, along with the new partnership with Reyes Beverage Group in California, aim to improve distribution efficiency and market penetration, which could support revenue growth and market share.
  
• Price mix benefits and continued innovation in ready-to-drink (RTD) formats, including expanded Jack Daniel's RTD offerings, are positioned to capture evolving consumer trends, potentially supporting revenue growth and aiding in margin stability due to the typically higher margins on RTD products.

Brown-Forman Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Brown-Forman's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 24.4% today to 22.6% in 3 years time.
• Analysts expect earnings to reach $1.0 billion (and earnings per share of $2.33) by about March 2028, up from $989.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $862 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.8x on those 2028 earnings, up from 16.9x today. This future PE is lower than the current PE for the US Beverage industry at 28.1x.
• 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 6.21%, as per the Simply Wall St company report.

Brown-Forman Future Earnings Per Share Growth

Risks

• The closure of Brown-Forman Cooperage and reduction of global workforce by approximately 12% could lead to operational challenges and may negatively impact the company's gross margin and earnings.
  
• The heightened competition and challenging macro environment affecting tequila brands, particularly in the US and Mexico, could pressure sales and adversely affect revenue growth in these key markets.
  
• Ongoing uncertainties related to tariffs, particularly with the European Union, may result in market distortions and negatively impact revenue and net margins if tariffs are imposed again.
  
• The ongoing inflation and challenging economic conditions in markets like Mexico could lead to a decrease in consumer spending on discretionary items, impacting sales volume and revenue.
  
• The potential impact of other trends such as increasing competition from smaller whiskey brands and pricing pressure in the US tequila market could affect market share and result in lower-than-expected revenue growth.

Valuation

• The analysts have a consensus price target of $40.806 for Brown-Forman 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 $57.5, and the most bearish reporting a price target of just $32.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.5 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 22.8x, assuming you use a discount rate of 6.2%.
• Given the current share price of $35.29, the analyst price target of $40.81 is 13.5% 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.