TSX futures subdued with key U.S. inflation data ahead
Investing.com -- Morgan Stanley downgraded French wines and spirits maker Pernod Ricard (EPA:PERP) to “underweight” following the release of the company’s full-year results, citing valuation concerns and a heightened risk of earnings downgrades.
Analysts said Pernod’s shares appear expensive, and forecasted earnings for fiscal year 2026 (FY26) are below consensus. The brokerage revised its price target to €85 per share from €90 per share.
The FY25 results showed some positive developments, including cost-cutting measures and a slower-than-expected unwind of pre-tariff distributor stock in the United States.
However, in absolute terms, earnings per share declined by 8% year-on-year. Morgan Stanley expects a weak start to FY26, forecasting first-quarter organic sales growth to fall by 6.5%.
Despite inventory adjustments in subsequent quarters, the brokerage sees full-year organic sales growth declining by 2%, compared with the consensus of a decline of 0.3%.
With sales expected to remain soft, tariff costs continuing, and a new cost-saving plan of €1 billion over four years, Morgan Stanley forecasts a decline in earnings before interest and taxes of 3.3%, versus a consensus expectation of a decline of 0.1%.
After accounting for taxes, interest, foreign exchange, and scope effects, FY26 earnings per share are projected at €5.85, down 19% from FY25 and 9% below consensus.
These projections do not yet include the pending disposal of Imperial Blue, which could further reduce earnings per share by an estimated 2%.
The brokerage flagged that Pernod’s current valuation, at 15.8 times projected FY26 earnings, is modestly below comparable staples at 16.4 times but above brewers at roughly 13–14 times.
Pernod also carries higher leverage, weaker organic sales growth, and structural pressures in its markets. Free cash flow yield is projected at 4.2% for FY26, compared with 5.1% for the sector, reflecting ongoing financial constraints.
Morgan Stanley noted that Pernod’s exposure to Europe and China could limit growth, and the disposal of Imperial Blue will reduce the company’s exposure to India from 13% to 11% of revenue.
Analysts said these factors, combined with the company’s valuation and leverage, support the Underweight rating.
The downgrade comes ahead of what Morgan Stanley expects to be another weak quarter in FY26.
The brokerage forecasts continued negative organic sales growth in the second quarter and anticipates further earnings revisions in the coming months.