Brown-Forman's Results Smooth but Shares Expensive

While we're not blind to the uncertainty posed by tariffs over the coming quarters, we continue to think that the company's substantial brand equity (which underpins our view of its wide moat) should help it leverage pricing to offset tariff pressures longer term. In markets affected by tariffs, the company plans for delayed price increases in order for the pricing of its offerings to remain competitive with its peer set, though this may weigh on near-term gross margin. In this context, we plan to slightly lower our bottom-line outlook for the year, as our $1.81 earnings per share estimate falls above management's revised range of $1.65 to $1.75 ($1.75 to $1.85 prior). However, we expect this change to be more than offset by the time value of money and consequently don't expect a significant change to our $45 fair value estimate. Moreover, our longer-term outlook, which calls for mid-single-digit net sales growth and around 35% operating margin on average, remains intact.

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