Drink Jack Daniel's, But Don't Invest In It

Jack Daniel's parent company Brown Forman (NYSE:BF.B) reported second quarter earnings (earnings call) on Wednesday. The whiskey and vodka maker saw strong earnings growth in emerging markets and continued to see strong net sales growth in premium spirits categories.

In the first quarter, net sales increased 4% to $878.1 million. Operating income increased 19% to $221.7 million. The company posted earnings per share of $0.69, representing an increase of 27% from last year's reported $0.54. For the fiscal year, Brown Forman is forecasting earnings per share of $2.40 to $2.67.

The Jack Daniel's trademark saw sales grow 15%, with success in the new Tennessee Honey line. Jack Daniel's Tennessee Honey expanded into several new international markets during the quarter, which helped the brand achieve double digit sales growth. The Southern Comfort line of drinks saw net sales decline 1%. Although the unit declined, it is approaching positive sales territory after sluggish numbers last fiscal year. Sales of Finlandia increased 20% in the first quarter. Finlandia continued to sell well in emerging markets, including Poland and Russia. Strong sales in Mexico and the United States powered Herradura net sales up 30%. Perhaps Brown Forman's best drink category for the future, super and ultra premium, saw net sales increase over 30%. This higher priced brand category includes Gentleman Jack and Single Barrel.

At the beginning of August, it was announced that regional bank PNC Financial (NYSE:PNC) took at 5% ownership stake in Brown Forman shares. The bank saw the opportunity to invest in the spirits category and shares saw a nice bump from the news.

Here is a look at how Brown Forman stacks up against alcohol rivals Beam (NYSE:BEAM) and Diageo (NYSE:DEO):

  Brown Forman Beam Diageo
Market Cap $13.7 billion $9.3 billion $68.03 billion
Share Price $64.20 $58.83 $109.02
52 Week Range $43.46-$65.33 $42.30-$64.00 $73.23-$109.49
Dividend Yield 1.6% 1.4% 3.1%
Price to Earnings 24.7x 24.6x 16.9x
Price to Sales 3.8x 3.8x 3.79

As you can see from the chart, it appears that the largest alcohol company Diageo is the place to invest in. Despite hitting new fifty two week highs, the company has the cheapest price to earnings, price to sales, and trades with the highest dividend yield.

I discussed in a June article that shares of Brown Forman were approaching new all time high share prices. The company saw the high price and decided to give shareholders a 3:2 stock split. Despite the lower price, shares are still pricey when looking at sales and earnings. I prefer Diageo with its stronger brands and high dividend yield. Diageo also is working on acquiring leading tequila brand Jose Cuervo. Beam also offers strong growth with a smaller market capitalization and the prospects of being bought out by one of its larger peers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.