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Brown-Forman Looks Bullish: Will the Rally Continue in 2018?

Zacks

Brown-Forman Corporation BF.B is witnessing spectacular growth lately on the back of a robust surprise trend and favorable outlook for fiscal 2018. Moreover, it is confident about growth at its premium American whiskey and tequila brands. The company also expects to gain from new product launches including Jack Daniel's Tennessee Rye and Slane Irish Whiskey. Shares of Brown-Forman have surged 34.3% in the past six months, outperforming the industry’s gain of 1.1%.

Let’s delve deeper into the factors driving this Zacks Rank #2 (Buy) stock.

Robust Surprise Trend


Brown-Forman boasts a solid earnings trend, beating estimates in the last two quarters owing to strength in margins. Further, the company delivered fifth straight quarter of growth in underlying sales in second-quarter fiscal 2018. Underlying sales growth can be attributed to the persistent momentum in its focus categories and strength in Jack Daniel’s, Woodford Reserve, Old Forester and Herradura brand families. Also, net sales gained from improved economies in emerging markets.

Favorable Outlook

Driven by a spectacular second-quarter performance and expectations of continued growth in the second half of 2018, Brown-Forman raised its guidance for fiscal 2018. The company now anticipates 6-7% growth in underlying sales compared with 4-5% projected earlier. Additionally, earnings per share are estimated in the range of $1.90-$1.98 versus the previous guidance of $1.85-$1.95.

Furthermore, the company expects to gain from the benefits of the new tax reform. It aslo revealed that Brown-Forman will provide an updated guidance for fiscal 2018 including the impact of the tax reform along with third-quarter fiscal 2018 results in early March.

Expanding Market Share

Brown-Forman remains committed toward enhancing its market share in the developed markets such as France and the U.S., and in the emerging markets like Russia, Poland, and Mexico where the whiskey category is in the early stages of development. Additionally, it is on track to expand the sphere of other brands such as Jack Daniel's Tennessee Honey, Jack Daniels Fire, Gentleman Jack and Jack Daniel's Single Barrel within Jack Daniel’s. Meanwhile, the company has entered the fastest-growing spirit category — the Irish Whiskey — with the purchase of all Slane Castle Irish Whiskey Limited’s shares in Ireland. The company expects to gain from new product launches including Jack Daniel's Tennessee Rye and Slane Irish Whiskey as well. In another development, the company acquired two historic properties at West Main Street in Louisville, KY to boost its Old Forester brand.

Shareholders to Benefit – Stock Split & Special Dividend

Brown-Forman has a tradition of returning cash to shareholders through regular dividend payouts and share repurchases. Evidently, it has been consistently paying quarterly cash dividends for the last 72 years in addition to raising dividend for 34 consecutive years.

Reaffirming this commitment, Brown-Forman approved various capital deployment actions that will benefit shareholders, employees and community. As part of these actions, the company proposed a five for four stock-split for its Class A and Class B common stocks and a special dividend, besides bringing additional funds for its defined benefit program and creating a charitable foundation.

Clearly, these initiatives reflect the strength of the company’s balance sheet and healthy business. Also, these positives are bolstered by the expected benefits from the tax reform.

Do Beverages-Alcohol Stocks Grab Your Attention? Check These

Investors interested may consider Boston Beer Company Inc. SAM, Constellation Brands Inc. STZ and Craft Brew Alliance Inc. BREW. While Boston Beer sports a Zacks Rank #1 (Strong Buy), Constellation Brands and Craft Brew carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Beer Company Sports delivered an average positive earnings surprise of 63.3% in the trailing four quarters. It has a long-term earnings growth rate of 5%.

Constellation Brands pulled off an average positive earnings surprise of 11.8% in the trailing four quarters. In addition, it has a long-term earnings growth rate of 19%.

Craft Brew delivered an average positive earnings surprise of 250.2% in the trailing four quarters. Also, shares of Craft Brew have rallied 34.4% in the past three months.

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