Brown-Forman likely faced continued pressure in its US spirits business during the fiscal third quarter and would need to increase spending to improve sales and market share, RBC Capital Markets noted in a recent client communication. The brokerage has lowered its price target on the wine and spirits maker to $44 from $49 while maintaining a sector perform rating.
The company's shares appear undervalued for a reason, exhibiting significant underperformance, as highlighted by RBC co-Head of Global Consumer and Retail Research, Nik Modi. 'Very few positive elements have emerged from this sector lately,' Modi emphasized. 'Concerns over tariffs persist as a risk factor, and we believe that increased spending will be essential for the company to enhance its top-line revenue and market share.' Recently, a joint statement released by the Distilled Spirits Council of the US, the Chamber of the Tequila Industry, and the trade organization Spirits Canada indicated their deep concerns over the US tariffs on imported spirits from Canada and Mexico, which they fear could further harm the industry. Consequently, RBC has revised its third-quarter adjusted earnings per share (EPS) target for Brown-Forman down to $0.46 from $0.48, aligning with the average expectations of analysts, which project an adjusted EPS of $0.46, according to a survey conducted by FactSet.
The bourbon maker, particularly known for its Jack Daniel's whiskey, is currently scheduled to unveil its third-quarter results before the market opens on Wednesday. The category depletions showed a deterioration in the calendar fourth quarter, as 'the anticipated demand failed to materialize,' Modi elaborated. 'Despite ongoing performance issues, we maintain that Brown-Forman's fundamentals still lean towards the downside,' he stated.
In light of these developments, RBC has also reduced its financial targets for both the current and forthcoming fiscal years. Specifically, for 2026, the revenue forecast has been lowered to $4.18 billion from previously expected $4.26 billion, and the adjusted EPS outlook has been adjusted downward from $1.88 to $1.79..