We have maintained our long-term Neutral recommendation on
), one of the leading producers and distributors of premium
alcoholic beverages in the world, with a target price of $72.00.
Moreover, the company holds a Zacks Rank #3 (Hold).
We remain impressed with the company's positive earnings
surprise trend, strong organic revenue growth and impressive
management guidance. However, on the other hand, intense
competition from private players and rising commodity costs make
us cautious on the stock.
The third quarter fiscal 2013 earnings of 73 cents per share
at Brown-Forman exhibited an improvement of 18% from the
comparable year-ago quarter as well as the Zacks Consensus
Estimate of 70 cents. The year-over-year increase was primarily
driven strong top-line growth along with improved margins.
Looking at the earnings surprise history, the company has
surpassed the Zacks Consensus Estimates thrice in the trailing
four quarters. The average positive surprise in the trailing 4
quarters comes to 3.6%.
Brown-Forman now projects fiscal 2013 earnings between $2.60
and $2.68 per share. The current Zacks Consensus Estimate stands
at $2.68 per share, which is in line with the upper end of
company's guidance range.
Moreover, Brown-Forman continues to expect operating income in
the low-double-digits range, while underlying sales are expected
to increase in the high-single-digit range.
Apart from the strong third-quarter results, Brown-Forman's
growth story looks compelling. We believe that the company's
sustained focus on pricing, product innovation and expanding
operations in the emerging markets will likely boost operational
On the flip side, stiff competition from other alcoholic
beverage companies, such as
) along with potential risk of operating in overseas market may
have an adverse effect on Brown-Forman's operations. Moreover, we
believe that the shares of the company are richly valued at the
current juncture, which limits its upside potential. Brown-Forman
currently trades at a forward P/E of 25.83x, substantially
premium from the peer group average of 20.28x.
Further, distilled spirits are subject to excise tax in
various countries. Rising fiscal pressure in the U.S.,
Europe and many emerging markets may increase the risk of a
potential rise in excise tax on spirits by governments of
respective countries. A hike in excise tax in the future may have
an adverse effect on Brown-Forman's financial performance.
Other Stocks Worth Considering
Other stocks worth considering in the alcoholic beverage
Companhia de Bebidas Das Americas
Molson Coors Brewing Company
). Both the companies carry a Zacks Rank #2 (Buy).
AMBEV-PR ADR (ABV): Free Stock Analysis
BROWN FORMAN B (BF.B): Free Stock Analysis
DIAGEO PLC-ADR (DEO): Free Stock Analysis
MOLSON COORS-B (TAP): Free Stock Analysis
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