Brown-Forman Corporation (BF-B)

Conclusion

Brown-Forman makes, distils, imports and sells spirits and wines, mainly under Jack Daniel's, Woodford Reserve, Old Forester and Herradura, from Louisville, Kentucky. On 2026-11-09 the share traded at 30.37 USD, giving a market capitalisation of 8.82 billion USD and an enterprise value of 10.96 billion USD.

The verdict is undervalued. Today's multiples sit far below their own ten-year medians: price to earnings is 12.2 against a median of 34.2, and enterprise value to EBITDA is 10.1 against 24.9. The discounted cash flow gives 49.10 USD per share, and the fair value from historical multiples is 102.58 USD. The fair value band runs from 60.67 to 91.01 USD with a midpoint of 75.84 USD, a margin of safety of 149.7% at the current price. The reverse DCF implies a yearly decline of 4.0% in growth, while revenue grew 2.6% a year over five years and free cash flow per share grew 4.0%.

What holds the case up: ROIC of 13.2% against a WACC of 7.8%, an Altman Z-score of 3.60, and free cash flow conversion of 128.3% on a trailing twelve-month basis. What would break it: earnings per share fell 4.0% a year over five years, operating margin of 28.6% sits below its ten-year median of 31.3%, and revenue shrank 2.4% a year over three years. The multiples are low because of this weak recent record, so the case depends on the business stabilising.

Financial health

Financial strength is green, held up by the Altman Z-score of 3.60, net debt to EBITDA of 1.97, interest coverage of 9.94 and a current ratio of 3.26. The quick ratio is 0.93 and debt to equity is 0.615. The Altman model was designed for manufacturers; a spirits producer is close enough to be read with it, and the company sits in the safe zone. Insolvency risk is low, about 0.25% by the estimate of the Ohlson model over one to two years. The company's trend in revenue has not added debt, with debt against revenue growth at -6.0% over five years.

Earnings quality

Earnings quality is green, supported by a Piotroski score of 7 out of 9 and a share count that fell 0.6% a year over five years, which means buybacks. Free cash flow conversion is 128.3% on a trailing basis but only 70.9% over five years, so the recent year flatters the average. The accrual ratio of -3.6% is favourable, and stock-based compensation is 0.8% of revenue, leaving 893 million USD of free cash flow after it. The Beneish M-score is not available. Over the last eight quarters the company beat estimates four times and missed four times, with an average surprise of -1.7%. Next-year estimates were revised up 0.7% over 90 days, against 6 upward and 5 downward revisions in the last 30 days.

Profitability

Profitability is green. The gross margin of 60.7% is in line with its ten-year median of 60.7%. The operating margin of 28.6% is below its median of 31.3%, and the net margin of 18.4% is below its median of 22.2%. Operating margin has been stable, with a stability measure of 8.4%. ROIC is 13.2% against a WACC of 7.8%, a ROIC minus WACC value of 5.3%, and the five-year median ROIC is 15.5%. The return on equity of 18.2% is built on a net margin of 18.2%, an asset turnover of 0.50 and an equity multiplier of 1.96, so leverage adds little to it.

Growth

Growth is red. Revenue compounded at -2.4% over three years, 2.6% over five years and 2.4% over ten years. Revenue grew in 6 of the last 10 years. Earnings per share fell over every horizon: -2.0% over three years, -4.0% over five and -3.1% over ten. Free cash flow per share grew 26.2% over three years, 4.0% over five and 8.9% over ten. The next-year earnings growth estimate is only 1.2%, so the outlook is for little improvement in earnings.

Valuation

Valuation is green. Price to earnings is 12.2 against a ten-year median of 34.2, a premium of -64.2%. Enterprise value to EBITDA is 10.1 against 24.9, a premium of -59.5%, and price to free cash flow is 9.5 against 43.8, a premium of -78.3%. The discounted cash flow gives 49.10 USD per share at a discount rate of 8.9%, with 54.6% of value in the terminal period. The fair value from historical multiples is 102.58 USD. The fair value band of 60.67 to 91.01 USD is an order-of-magnitude estimate built on fixed assumptions, a 5% equity risk premium and capped growth, not a price target. The reverse DCF implies -4.0% growth against 2.6% revenue growth and 4.0% free cash flow per share growth over five years. The dividend yield is 4.8%, with a forward yield of 3.2% and a payout of 46.1% of free cash flow.

Risks

A weaker operating margin would reduce the cash that supports the 4.8% dividend and the debt service, and a further fall in revenue would push the earnings trend further negative. Debt at 1.97 times EBITDA would become harder to carry if earnings kept shrinking. The Beneish M-score is not available, and the analysis has no debt maturity schedule and no revenue by segment, so the timing of refinancing and the source of any revenue decline cannot be checked. The fair value band rests on fixed assumptions, and with more than half of the DCF value in the terminal period, the result is sensitive to long-term growth and the discount rate.