Emerging Asian Consumers And Premium Spirits Will Redefine Markets

Key Takeaways

• Expansion in emerging markets and the premiumization strategy position the company for long-term growth, higher margins, and increased brand prestige globally.
  
• Cost-saving initiatives and innovation in products and distribution channels support operating efficiency, broaden market reach, and drive sustained earnings momentum.
  
• Heavy dependence on Jack Daniel’s, flat U.S. demand, shifting consumer trends, regulatory unpredictability, and rising competitive pressures threaten long-term growth and margin resilience.

Catalysts

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

• Brown-Forman’s continued focus on expanding in emerging international markets, especially in Asia and Latin America, positions the company to capture long-term volume and revenue growth from the rapidly growing global middle class who are trading up to premium and super-premium spirits, supporting both top-line growth and higher net margins.
  
• The acceleration of the company’s premiumization strategy—including successful launches of higher-priced, limited-edition, and permanent ultra-premium expressions such as Woodford Reserve Double Double Oak and Jack Daniel’s 14-year-old—is driving growth in average selling prices and gross margin expansion as consumer preferences worldwide shift to higher-quality and heritage brands.
  
• Ongoing innovation in ready-to-drink (RTD) beverages and flavor extensions, such as the Jack & Coke RTD family and New Mix offerings, is capturing rising consumer demand for convenience and lower-alcohol formats, prompting incremental sales growth and expanding Brown-Forman’s addressable market, thereby supporting revenue and earnings growth.
  
• Large-scale cost-saving initiatives—including a recently announced 12 percent workforce reduction, the closure of in-house cooperages, and the streamlining of supply chains—are expected to produce annualized savings of approximately $70 million to $80 million, which can be reinvested into brand growth and innovation, boosting operating margins and net income over the long run.
  
• Strategic investments in direct-to-consumer digital channels, new route-to-consumer models in key markets (such as expanding with Reyes Beverage Group in California and own distribution in Italy and Japan), and synergistic international partnerships are expected to drive more profitable, efficient sales and sustainable top-line and margin growth through enhanced consumer engagement and market access.

Brown-Forman Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Brown-Forman compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Brown-Forman's revenue will grow by 2.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 21.9% today to 21.4% in 3 years time.
• The bullish analysts expect earnings to reach $905.1 million (and earnings per share of $2.04) by about August 2028, up from $869.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 25.8x on those 2028 earnings, up from 16.5x today. This future PE is greater than the current PE for the US Beverage industry at 25.3x.
• 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 6.78%, as per the Simply Wall St company report.

Brown-Forman Future Earnings Per Share Growth

Risks

• The rising trend in health and wellness—especially among younger demographics—continues to drive reduced alcohol consumption, and management acknowledges that U.S. spirits value trends are flat to down while Gen Z is spending less on alcohol; this long-term demand headwind may put persistent pressure on revenues.
  
• Increased regulatory scrutiny and the potential for higher tariffs—particularly with uncertainty in the EU, Mexico, and Canada—could significantly disrupt key export markets; management concedes these risks are not fully predictable, creating ongoing threats to both revenue growth and net margins.
  
• Management repeatedly highlights that Jack Daniel’s remains the dominant earnings driver, and while efforts are being made to refresh the brand, the portfolio’s heavy reliance on a single label leaves Brown-Forman especially vulnerable to shifts in consumer preferences or brand fatigue, risking a disproportionate impact on company-wide sales and earnings.
  
• Competition is intensifying from global spirits majors and a proliferation of craft brands, with the CEO emphasizing a challenging competitive environment in the U.S. and price promotions in key categories like tequila; these dynamics are already eroding pricing power and threaten continued margin compression.
  
• Slower growth and mixed performance in developed international markets, coupled with underperformance in key tequila brands and an emphasis on cost savings through workforce reductions and plant closures, suggest structural challenges in innovation and premiumization, potentially undermining Brown-Forman’s ability to drive sustained earnings and margin expansion as industry trends evolve.

Valuation

• The assumed bullish price target for Brown-Forman is $40.59, which represents two standard deviations above the consensus price target of $31.28. This valuation is based on what can be assumed as the expectations of Brown-Forman's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $42.0, and the most bearish reporting a price target of just $25.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $4.2 billion, earnings will come to $905.1 million, and it would be trading on a PE ratio of 25.8x, assuming you use a discount rate of 6.8%.
• Given the current share price of $30.34, the bullish analyst price target of $40.59 is 25.3% 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.