This “Forgotten” Dividend Aristocrat Is 25% Undervalued and Effectively Yields More Than a Treasury Bond

Core Viewpoint - Brown-Forman is identified as a "forgotten" Dividend Aristocrat, currently undervalued by 25% and yielding more than Treasury bonds, making it an attractive investment opportunity [1]. Company Overview - Brown-Forman is the largest American-owned global spirits company, with a significant market share of approximately 34% in the U.S. Whiskey & Bourbon Distilleries industry [1]. - The company's portfolio includes well-known brands such as Jack Daniel's, Woodford Reserve, and Old Forester [1]. Financial Performance - The stock is trading at 17 times earnings, significantly lower than its historical median of 34 times [1]. - The stock has declined by 64% from its peak in 2020, primarily due to overvaluation and subsequent demand weakening [1]. - The three-year revenue growth rate is less than 1% annually, and the free cash flow growth rate has decreased by 18.1% annually [1]. Capital Expenditure and Cash Flow - Despite declining operating cash flow, Brown-Forman has managed to increase free cash flow due to cuts in capital expenditures [1]. - In FY 2019, the company reported $679 million in free cash flow from $800 million in operating cash flow, indicating potential for improved cash flow management [1]. Future Outlook - The company is expected to have a 25-30% upside potential within the next year, as the stock could trade at over 25 times earnings once market conditions improve [1]. - The dividend yield is currently at 3%, which may become more attractive as Treasury yields decrease [1]. - Brown-Forman has a strong history of increasing dividends for 42 consecutive years, with a current shareholder yield of 6.58% when including share buybacks [1].