On Thursday, TD Cowen maintained its Hold rating on Brown Forman (NYSE:BFb) (NYSE:BF-B) shares but reduced the price target significantly from $50.00 to $38.00. This adjustment follows the company's announcement of executive leadership changes, a 12% reduction of its workforce, and the closure of its Louisville cooperage.
These strategic decisions are part of a cost-saving initiative expected to yield $70-80 million in annualized savings. Some of these funds will be reinvested to foster growth within the company.
The Louisville-based spirits company, known for its Jack Daniel's whiskey, has not provided an update to its FY25 guidance amidst these changes. Analysts at TD Cowen interpret these moves as an indication of a prolonged slowdown in the demand for spirits, with no immediate signs of recovery.
The new price target reflects a 20.3 times multiple on the firm's forward 12-month earnings per share (EPS) estimate, which is a significant discount compared to Brown Forman's five-year average next twelve months (NTM) price-to-earnings (P/E) multiple of 33.3 times.
The rationale behind the lowered price target includes not only the current sluggish trends for Brown Forman but also broader industry challenges. Additional factors contributing to the cautious outlook include potential risks to U.S. per capita alcohol consumption due to increased regulatory scrutiny, such as Surgeon General warnings and the Monitoring of Alcohol Marketing and Youth (MAHA) activities.
Brown Forman's recent strategic decisions are a response to the challenging market conditions facing the spirits industry. The company is aiming to streamline operations and reduce costs in an effort to position itself for sustainable growth amid a difficult economic environment for alcohol producers.
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