Stock of the day 25/08/2015 – Brown-Forman Corp

Up until the most recent bout of super-destructive China-anxiety, Brown-Forman had been having an all-time high hitting year.

Can the company get back on track with its Q1 2016 results on Wednesday?

Things had, until the start of June, been a bit dull for Brown-Forman. The stock spent the first 5 months of the year ping-ponging around an $88 to $92 trading bracket, struggling to escape this band for any meaningful period of time. Even its third quarter results in March couldn’t inspire any growth, with an in-line 5% increase in net sales and a 7% jump in operating income causing the stock to slip to the lower end of the bracket.


(Source: IT-Finance.com 25/08/2015)

Brown-Forman’s fortunes began to change, however, with the arrival of the company’s fiscal fourth quarter figures at the start of June. A better-than-expected 6% jump in revenue to $947 million against the $918 million forecast was the headline figure; the promise of full year earnings per share between $3.40 and $3.60, meanwhile, was an extra bonus and beat the $3.46 suggested by analysts. Like in its third quarter Jack Daniel’s was the star brand, posting underlying sales growth of 8%, itself boosted by the success of its Tennessee Honey beverage, which grew by 28%.

To cap it all off, Brown-Forman announced the purchase of Slane Castle Irish Whiskey, complementing the acquisition with news of a $50 million new distillery in Ireland. In a time when not all alcoholic beverages are doing so well, Irish whiskey is the Superman of the sector, with sales growing 11.7% between 2009 and 2013. Combine this with Brown-Forman’s aforementioned success with whiskey, and investors were more than impressed with the purchase, causing the stock to hit a fresh peak of $103.47 towards the end of June.

The stock couldn’t rise above this price for most of July, until news that the company had started construction on its new Old Forester Distillery in Louisville helped restore appetite in investors, lifting Brown-Forman to an all-time high of $111.10 by the start of August. As mentioned above, however, the recent market volatility hasn’t left the company unscathed, with Brown-Forman falling to a current trading price of $99.08 (IT-Finance.com, 25/08/2015), the first time the stock has dipped below $100 since the start of July.

In terms for its first quarter 2016 results, analysts are expecting earnings per share of $0.75 compared to $0.70 year-on-year, alongside revenue of $947.08 million against the $921 million the company posted for its fiscal 2015 first quarter.

Brown-Forman has received a consensus rating of ‘Buy’ from analysts, with an average target price of $104.82.