- Brown-Forman (NYSE:BF.B) (NYSE:BF.A) stock jumped 4.6% in Wednesday premarket trading after Morgan Stanley awarded the stock a rare double-upgrade — to Overweight from Underweight — as headwinds are turning to tailwinds.
- Morgan Stanley's earlier Underweight rating had been based on three concerns: limited visibility on gross margin recovery, slower U.S. spirits industry growth, and Brown-Forman's (BF.B) full valuation.
- "With gross margins now turning from headwind to a tailwind, and concerns over industry growth likely to dissipate, MSCO expects the stock to appreciate as investors refocus on BF.B's robust long-term +5-7% topline and high single digit operating income growth profile," according to the Morgan Stanley note.
- The analyst pointed to greater visibility around gross margin recovering over the next 12-24 months, with spot prices for agave dropping 25%-50% in the past three to six months due to increased supply.
- The Overweight rating is more bullish than the SA Quant rating, the average SA Analyst rating, and the average Wall Street rating, all at Hold.
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