BF.B Stock Study (10-9-25)

Posted by Mark on November 15, 2024 at 07:34 | Last modified: October 9, 2025 11:06

I recently did a stock study on Brown-Forman Corp (BF.B) with a closing price of $27.81. The previous study is here.

M* writes:

     > Brown-Forman is a US-based manufacturer of premium distilled
     > spirits that generates 71% of revenues in the whiskey
     > category, under well-known Tennessee whiskey brand Jack Daniel’s
     > and bourbon brands Woodford Reserve and Old Forester. It also
     > manufactures and distributes tequila, vodka, rum, gin, and premium
     > wines. The company generates 45% of sales from its home market,
     > while the bulk of international revenues come from Europe,
     > Australia, and Latin America. The Brown family controls over 50%
     > of the economic interests and a 67% voting power of the company.

Over the past nine years (FY ends Apr 30; references to year at BI and Value Line incremented to align), this medium-size company has grown sales and EPS at annualized rates of 4.0% and 3.7%, respectively (2016 excluded due to one-time sale of Southern Comfort and Tuaca brands that resulted in EPS up 63.3% YOY). Lines are somewhat up and parallel with sales dips in ’24 and ’25 and EPS dips in ’20, ’22, ’23, and ’25. Ten- (five-) year EPS R^2 is 0.58 (0.07) and Value Line (VL) gives an Earnings Predictability score of 85.

Over the past nine years, PTPM trails peer and industry averages while declining from 31.2% to 27.2% (’25) with a last-5-year mean of 28.4%. ROE also lags peer and industry averages while falling from 55.5% (’17) to 22.7% (’25) with a last-5-year mean of 29.8%. Debt-to-Capital is less than peer and industry averages while declining from 61.1% (’17) to 40.6% (’25) with a last-5-year mean of 45.8%.

Quick Ratio is 0.88 and Interest Coverage is 10.1 (21.1) per M* (VL). M* rates the company “Exemplary” for Capital Allocation, assigns a “Wide” Economic Moat, and gives a Financial Health grade of B (per BI website). VL grades the company B++ for Financial Strength.

With regard to sales growth:

• YF projects YOY 3.4% contraction and 2.0% growth for ’26 and ’27, respectively (based on 17 analysts).
• Zacks projects YOY 3.4% contraction and 1.7% growth for ’26 and ’27, respectively (4 analysts).
• VL projects 4.2% annualized growth from ’25-’30.
• CFRA projects contraction of 2.8% YOY and 0.8% per year for ’26 and ’25-’27, respectively.
• M* provides 2-year ACE of 1.3%/year contraction and projects 3.4%/year growth for next decade in its analyst note.

I am being [very] conservative and forecasting zero growth.

With regard to EPS growth:

• MarketWatch projects 2.2% contraction and 0.9% growth per year for ’25-’27 and ’25-’28 (based on 22 analysts).
• Nasdaq.com projects growth of 4.7% and 3.5%/year for ’26-’28 and ’26-’29 [6, 3, and 1 analyst(s) for ’26, ’28, and ’29].
• Seeking Alpha projects 4-year annualized growth of 1.0%.
• Finviz projects 5-year annualized growth of 0.6%.
• YF projects YOY 10.4% contraction for ’26 and 5.0% growth for ’27 (17).
• Zacks projects YOY 9.8% contraction for ’26 and 3.6% growth for ’27 (4).
• VL projects 9.1% annualized growth from ’25-’30.
• CFRA projects contraction of 10.3% YOY for ’26 and 3.9% per year for ’25-’27.
• M* projects long-term annualized growth of 4.3%.

My 1.0% forecast is near bottom of the long-term-estimate range (mean of four: 3.8%). I will use 2026 Q1 EPS of $1.79/share (annualized) as the initial value rather than ’25 EPS of $1.84.

My Forecast High P/E is 27.0. Over the past nine years, high P/E ranges from 27.1 in ’25 to 47.9 in ’23 with a last-5-year mean of 39.9 and a last-5-year-mean average P/E of 34.3. I am below the range.

My Forecast Low P/E is 12.0. Over the past nine years, low P/E ranges from 16.6 in ’25 to 37.0 in ’23 with a last-5-year mean of 28.7. I am forecasting well below the range.

My Low Stock Price Forecast (LSPF) is the default $21.50 given initial value above. This is 22.7% less than the previous closing price and 15.7% less than the 52-week low.

Over the past nine years, Payout Ratio (PR) ranges from 37.5% in ’19 to 48.3% in ’23 (and ’25) with a last-5-year mean of 43.2%. I am forecasting below the range at 37.0%.

These inputs land BF.B in the BUY zone with a U/D ratio of 3.6. Total Annualized Return (TAR) is 14.1%.

PAR (using Forecast Average—not High—P/E) of 7.5% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on the 14.1% total annualized return (TAR) instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 11 studies in the past 90 days (my study and 6 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 2.6%, 4.2%, 25.0, 16.0, and 42.8%, respectively. I am lower on all but Forecast High P/E (27.0). VL projects a future average annual P/E of 18.0 that is less than both MS (20.5) and mine (19.5).

MS high / low EPS are $2.24 / $1.79 versus my $1.88 / $1.79 (per share). My high EPS is less due to a lower growth rate. VL’s high EPS of $2.85 soars above both.

MS Low Stock Price Forecast (LSPF) of $23.30 implies a Forecast Low P/E of 13.0: less than the above-stated 16.0. MS LSPF is 18.7% less than the default $1.79/share * 16.0 = $28.64 (INVALID on today’s date) resulting in more conservative zoning. MS LSPF is 8.4% greater than mine, however.

With regard to valuation, PEG is 15.4 and 11.4 per my projected P/E and M*, respectively. I regard these as NMF due to small denominators (growth rate). Relative Value [(current P/E) / 5-year-mean average P/E] is extremely low at 0.45.

I think MOS is high because my inputs are near or below respective analyst/historical ranges. My Forecast P/Es are below historical ranges. Earnings growth has been discounted to 1%. I’ve even lowballed the PR, which M* thinks is sustainable and reasonable long-term at 52%. Comparison with MS is not robust due to the small sample size but as anecdotal reference, MS TAR of 17.9% is 3.8% per year greater than mine: consistent with a solid MOS.

Despite doing business for over 150 years, Brown-Forman is still “undiscovered country” for the BI community although its brands probably are not. It’s a slow grower and that may be significant. However, it seems built to last with solid financial strength. Unless one thinks alcohol will be phased out in coming years, it may be worth a look. CFRA describes it as a high-quality stock with gross margins near 60% and Dividend Aristocrat status.

Per U/D, BF.B is a BUY under $28.80/share. Given a forecast high ~$51, the BI TAR criterion [doubling in five years] is met
~ 50.8 * ((1 – ((15.0 – 1.4) / 100)) ^ 5) = $24.50/share.

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