Gold prices steady ahead of Fed decision; weekly weakness noted
On Thursday, Morgan Stanley (NYSE:MS) downgraded shares of Brown Forman (NYSE:BFb) (NYSE:BF-B) from Equal-weight to Underweight, significantly reducing the price target to $32 from $47. The downgrade comes in response to expectations of continued subdued growth in both top-line revenue and profits. This outlook is attributed to persistently weak demand for spirits in the United States and globally, structural challenges to alcohol consumption, tariff risks, and an oversupply of American whiskey.
Brown Forman’s stock had experienced a sharp decline of 41% over the last twelve months, contrasting with the S&P 500’s gain of 15%. Despite a recent 10% surge in share price following third-quarter results that were better than anticipated, Morgan Stanley’s analysis suggests that the stock’s risk/reward ratio has become decidedly negative in the short term. The firm points out that the underlying third-quarter results were weak, indicating that a rebound in performance might take longer than expected.
The firm’s stance is also influenced by broader industry trends that are seen as unfavorable for the U.S. spirits category, which historically grew at a rate exceeding 4%. These trends include demographic shifts, with Generation Z reportedly consuming less alcohol, a growing emphasis on health and wellness, moderation movements, and the impact of GLP-1, a class of drugs that may reduce alcohol consumption. Additionally, the rise of cannabis is seen as a structural headwind. Brown Forman’s market share has been slipping, as evidenced by data from NABCA control states, which account for approximately 25% of industry volumes.
Morgan Stanley anticipates that tariff risks will continue to loom over the industry, and they do not foresee Brown Forman being able to avoid potential pricing or market share pressures due to the American whiskey oversupply. Following the third-quarter results, the firm has maintained its fiscal year 2025 estimates but has lowered its projections for fiscal years 2026 and 2027 by 6% and 9%, respectively. These adjustments are made before considering any impact from tariffs. The new price target reflects a reduced P/E multiple of 17 times the projected CY26 earnings, down from the previous multiple, due to limited visibility into the company’s revenue and earnings per share.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.