Is Brown-Forman Corp (BF.B) Modestly Undervalued? A Comprehensive Valuation Analysis
Brown-Forman Corp (NYSE:BF.B) experienced a daily gain of 2.68%, with a 3-month gain of 9.63%. The company's Earnings Per Share (EPS) stands at 1.63. But is the stock modestly undervalued? We delve into a comprehensive valuation analysis to answer this question. Read on to explore our findings.
Introducing Brown-Forman Corp (NYSE:BF.B)
Brown-Forman is a U.S.-based manufacturer of premium distilled spirits. The company generates close to 70% of revenues in the whiskey category, under well-known Tennessee whiskey brand Jack Daniel's and bourbon brands Woodford Reserve and Old Forester. Apart from whiskey, it also manufactures and distributes tequila, vodka, rum, gin, and premium wines. The Brown family controls over 50% of the economic interests and voting power of the company.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
Brown-Forman (NYSE:BF.B) stock appears to be modestly undervalued based on the GF Value calculation. At its current price of $68.7 per share, Brown-Forman has a market cap of $33.20 billion, and the stock appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Assessing Brown-Forman's Financial Strength
Investing in companies with poor financial strength can result in a higher risk of permanent loss. Brown-Forman has a cash-to-debt ratio of 0.13, which is worse than 77% of companies in the Beverages - Alcoholic industry. The overall financial strength of Brown-Forman is 6 out of 10, indicating fair financial strength.
Profitability and Growth of Brown-Forman
Companies that have been consistently profitable over the long term offer less risk for investors. Brown-Forman has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.20 billion and Earnings Per Share (EPS) of $1.63. Its operating margin is 26.66%, which ranks better than 88.04% of companies in the Beverages - Alcoholic industry. Overall, the profitability of Brown-Forman is ranked 8 out of 10, indicating strong profitability.
Growth is one of the most crucial factors in the valuation of a company. Brown-Forman's 3-year average revenue growth rate is better than 60.61% of companies in the Beverages - Alcoholic industry. However, Brown-Forman's 3-year average EBITDA growth rate is 0.6%, which ranks worse than 67.4% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. Brown-Forman's ROIC is 15.72 while its WACC came in at 7.74. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders.
Conclusion
In conclusion, the stock of Brown-Forman (NYSE:BF.B) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 67.4% of companies in the Beverages - Alcoholic industry. To learn more about Brown-Forman stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
