Initial Equity Research: Brown Forman

Brown-Forman is the undisputed leader in the American Whiskey category and the fifth-largest player worldwide in the global premium spirits industry.

Its dominant exposure American Whiskey and Tequila (nearly 90% of its sales, considering RTD), the 2 biggest winners in the beverage industry in the last decade (still holding favorable growth forecasts) grabbed our attention. Brown-Forman is currently trading at its 2013 prices, despite having more than double its operating profit since then.

Above all its brands, it stands out one of the most popular spirits brand in the world: the iconic Jack Daniel’s. An asset with timeless value and tremendous heritage and brand power.

As a matter of fact, Brown-Forman does not only have Jack Daniel’s capturing the mental quota of the spirits consumers, the flagship Old Forrester (founded by George Garvin Brown) and Casa Herradura, Bourbon and Tequila brands hold an irreplicable Heritage of more than 150 years; both were founded in 1870.

Brown-Forman owns at least 1 of the top 5 brands globally in 4 strong growth categories: Super-premium American whiskey (Woodford Reserve), super-premium tequila (Herradura), ultra-premium gin (GinMare) and ultra-premium rum (Diplomatico).

Bourbon, which was a highly popular spirit in the 1970s and later lost notoriety, has become one of the biggest winners of the century.

The new US presidency could mean a turning point and a return to growth for Bourbon, as the USA set 10% tariffs to all the countries in the world (information as of April 10th, 2025). Improving the competitive landscape for the American liquor nationally.

Tequila is the hottest category in the spirits segment and was again the fastest growing spirit category in 2024. The cost of the Agave greatly impacts the gross margins of the tequila producers. The recent sharp decrease of agave prices in 2024 (In 2025, we are down to MXN 10), represents a massive opportunity for Tequila producers to improve margins.

However, Brown-Forman has had a very complicated couple of years with the stock down 60% since its historical highs.

• The entire spirits category is under the pressure of higher inflation and raising interest rates, as they are impacting the consumer discretionary expenses and the supply chain.
• The constant presence in the news of big three that everyone talks about – GLP-1s, cannabis and Gen Z – has shifted away the interest from what used to be an exciting industry that conveyed very high valuation multiples.
• The new US administration’s Make America Healthy Again initiative has created a completely new set of risks that could eviscerate the alcohol industry in the US.
• The latest Nielsen, and IWSR weak sector data suggests the potential risk of a looming supply/demand imbalance in the short-term.

Today we present an in-depth analysis on Brown Forman. Our objective is to objectively assess whether this is the right time to gain exposure to one of the worlds’s most unique assets or if we are facing aparadign shift and the downfall of one of the most successful family owned companies in the USA.

• Explanation of the Macro trends in the beverage industry. With special focus on American Whiskey, Tequila and RTDs
• Detailed analysis of its main brands, strategy and business model and capital allocation
• Detailed evaluation of the latest news and risks that have surged in the beverage industry and directly impact the USA and Brown-Forman specifically.
• Detailed analysis of its finances, debt and capital allocation.
• Valuation and opinion of the risk/benefit behind the potential opportunity.