Is Brown-Forman Still Attractive After Its Recent 8% Share Price Jump?

• Wondering if Brown-Forman is good value after its big price moves? You are not alone. This is exactly the kind of stock that gets investors talking.
• Over the past month, Brown-Forman's share price climbed by 8.2% and is up 1.9% this week, though it is still down more than 22% year-to-date and nearly 29.2% over the past year.
• Recent headlines have focused on changing market sentiment toward beverage companies and some high-profile executive moves across the industry. These stories are shaping how investors perceive both risks and upside in sector leaders like Brown-Forman.
• When we apply a quick valuation check, Brown-Forman scores a 4 out of 6 on undervaluation criteria. Next, let's dig into traditional valuation approaches. Keep reading, as we will share a smarter way to evaluate Brown-Forman's potential at the end of the article.

Find out why Brown-Forman's -29.2% return over the last year is lagging behind its peers.

Approach 1: Brown-Forman Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's true worth by projecting its future cash flows and discounting them back to today, reflecting what those future dollars are really worth right now. This approach is widely used because it focuses on what ultimately matters to shareholders: the cash the business can actually generate and return over time.

For Brown-Forman, the DCF analysis starts with its current Free Cash Flow of $556.1 million. Analysts provide explicit forecasts for the next five years, anticipating steady growth in those annual cash flows. Beyond that, Simply Wall St extends the projections and reaches a Free Cash Flow estimate of $983.9 million by 2035. All these figures are expressed in dollars and remain below $1 billion throughout the forecast horizon, so they are kept in millions for clarity.

The model calculates an intrinsic value for the stock of $42.19 per share, which is based on these cash flow estimates and discounted back using a rate that reflects the risk and time value of money. According to this approach, Brown-Forman currently trades at a 31.3% discount to its calculated fair value, which suggests the stock appears significantly undervalued compared to where the DCF model estimates its worth.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Brown-Forman is undervalued by 31.3%. Track this in your watchlist or portfolio, or discover 921 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Brown-Forman.

Approach 2: Brown-Forman Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies. It compares the company's share price to its earnings per share, reflecting how much investors are willing to pay for each dollar of profit. For companies like Brown-Forman with a long history of steady earnings, the PE ratio offers a clear snapshot of market expectations about future performance.

Growth prospects and business risk play a significant role in determining what is considered a "normal" or "fair" PE ratio. Firms expected to grow rapidly or deliver highly stable profits often have higher PE multiples. In contrast, companies facing uncertainty or slim profit margins typically have lower ones.

Currently, Brown-Forman’s PE ratio stands at 16.2x. This figure places it slightly below both its peer average of 18.3x and the beverage industry’s average of 17.9x. Rather than relying solely on these benchmarks, Simply Wall St’s proprietary “Fair Ratio” offers a more detailed perspective. The Fair Ratio, calculated at 16.2x for Brown-Forman, takes into account additional factors such as expected earnings growth, profit margins, the company’s risk profile, market capitalization, and broader industry conditions. This approach provides a more holistic measure than simple peer or sector comparisons.

Since Brown-Forman’s actual PE matches its Fair Ratio very closely, the stock appears to be fairly valued using this metric.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1438 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Brown-Forman Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your story or perspective about a company: the reasons you believe it will outperform or underperform, combined with your own assumptions about its future revenue, earnings, and profit margins.

Narratives link the company's story (its strategy, challenges, and opportunities) to a financial forecast and, ultimately, to an estimated fair value. This approach helps you bridge the gap between headline numbers and the bigger picture, making it easier to understand why you think Brown-Forman is worth more or less than its current price.

Narratives are available right now on Simply Wall St’s Community page, making them an easy and accessible tool for anyone, whether you are a seasoned investor or just starting out. By comparing your Narrative’s fair value to the current share price, you can decide if it is time to buy, hold, or sell. In addition, Narratives update automatically when news or earnings come out, so you are always working with the latest information.

For example, some investors think Brown-Forman’s ability to grow internationally and premiumize its brands justifies a bullish fair value of $40. Others see risks from competition or shifting global demand and set a more cautious value at $25. What’s your Narrative?

Do you think there's more to the story for Brown-Forman? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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