Insiders Are Buying Shares of Brown-Forman Corporation (BF.A), Should You?

Other alcoholic beverage companies include Diageo plc (ADR) (NYSE:DEO), BEAM Inc (NYSE:BEAM), Constellation Brands, Inc. (NYSE:STZ), and Anheuser-Busch InBev NV (ADR) (NYSE:BUD). Of these four stocks, the two giants- Diageo and Anheuser-Bush- trade at something of a discount to Brown-Forman Corporation (NYSE:BF.A) with trailing earnings multiples in the 19-20 range. Interestingly, each of these companies is coming off a significant increase in net income in their most recent quarter compared to the same period in the previous fiscal year though their revenue numbers were significantly lower. We don’t think that they can sustain high growth on margin improvements alone, and that they still need to do well in order to justify their current valuation. Constellation has risen over 80% in the last year, resulting in its premium pricing, but analysts expect the company’s efficiency to improve next year with the result being that its valuation represents a forward P/E of 15. Beam has been experiencing good growth on both top and bottom lines; though much of its earnings growth has been through margins, revenue has been doing nicely as well. However, as with Brown-Forman the market is assigning a fairly aggressive valuation to the stock and so we’re not sure that it’s a good value.

Investors are perhaps more optimistic about alcoholic beverage companies in general than their recent performance merits. Earnings growth has generally been strong, but at some companies revenue numbers have been much weaker leading us to be skeptical that these businesses can continue to do well. Beam and Brown-Forman have at least been achieving moderate revenue growth, but those stocks are quite expensive in trailing earnings terms and so even with the insider buying at Brown-Forman Corporation (NYSE:BF.A) we aren’t sure either is a good value.

Disclosure: I own no shares of any stocks mentioned in this article.