The big draw to Diageo plc (ADR) (NYSE: DEO) is not just its 2.4% dividend yield, but its valuation and industry-leading operating margin. Diageo’s trailing twelve month operating margin is 34%, compared to top peer Beam’s 25% (see how Diageo stacks up head to head versus Beam).
BEAM Inc (NYSE: BEAM) is the world’s fourth largest premium spirits company, and the second largest in the United States. Top brands include Jim Beam (bourbon), Maker’s Mark (bourbon) and Courvoisier (cognac). One positive for BEAM Inc (NYSE: BEAM) is its geographically diverse revenue streams. Markets outside of North America make up around 44% of sales, with 22% derived from Europe, the Middle East and Africa, and another 22% from Asia and South America.
BEAM Inc (NYSE: BEAM)’s predecessor, Fortune Brands, helped position the company with a nice balance sheet. Fortune had sold off its golf business and spun off its home and security business in 2011, using the proceeds ($1.1 billion) to pay down debt. Although BEAM Inc (NYSE: BEAM) has the best balance sheet, with a long-term debt to equity ratio of 44%, compared to Brown-Forman Corporation (NYSE: BF.B) (69%) and Diageo plc (ADR) (NYSE: DEO) (99%), its valuation and recent performance make the company relatively unattractive. Last quarter’s results showed weakness, with EPS of $0.67 coming in below the $0.71 consensus estimates and below the $0.69 posted in the same quarter last year. However, billionaire Bill Ackman still has a large part of his hedge fund invested in Beam after his activist campaign at Fortune Brands (check out all of Akcman’s stocks).