Brown-Forman: We Are Selling At Current Price Levels

Brown-Forman (NYSE:BF.B) produces and markets Jack Daniel's, Southern Comfort, Finlandia, Canadian Mist and Korbel. The company has earned a 20-25%+ return on equity and grown profits and dividends between 8% and 10% over the past 10 years. Despite the global recession, BFB still managed to increase earnings per share through that period and should continue to make progress as result of:

  1. the competitive advantage offered by its strong portfolio of brands,
  2. management's focus on higher margin products [it is moving out of its wine business],
  3. geographic expansion,
  4. a stock buy back program.

Negatives:

  1. its products are sensitive to economic developments,
  2. a highly competitive industry,
  3. distilled spirits are subject to excise taxes in various countries.

Brown Forman is rated A+ by Value Line, has a 30% debt-to-equity ratio and its stock yields 1.8%

Statistical Summary

Stock Yield

Dividend Growth Rate

Payout Ratio

# Increases Since 2001

BF.B

1.8%

6%

35%

10

IND*

1.8

8

43

NA

Click to enlarge

Debt/Equity

ROE

EPS Down Since 2001

Net Margin

Value Line Rating

BF.B

30%

24%

0

20%

A+

IND*

53

23

NA

13

NA

Click to enlarge

*IND is the average of the Beverage Industry as compiled from Value Line

Note: BF.B stock made good, steady progress off its March 2009 low, surpassing the down trend off its August 2008 high (straight red line) and the November 2008 trading high (green line). BFB is in a long-term up trend (blue lines) was as well as an intermediate-term up trend (purple lines). The wiggly red line is the 30-day moving average. The Dividend Growth Portfolio owns a 50% position in BFB, having recently sold half - while we like the company, at current prices, the stock is very richly valued. Hence, we think that it makes sense to take some money off the table. The upper boundary of its Buy Value Range is $45; the lower boundary of its Sell Half Range is $81.

Disclosure: I am long BF.B.