Brown-Forman (BF.B) Stock Continues To Fall: Here's Why

A successful portfolio manager is well aware of the fact that dropping underperforming stocks at the right time is as important as picking the lucrative stocks. A fall in the company’s stock price as well as downward estimate revisions can be indicators of the ideal time to abandon a share.

It seems that Brown-Forman Corporation BF.B is one such stock, which entered the red territory recently. Shares of this Zacks Rank #4 (Sell) company have dropped 6.4% in the last 5 days, highlighting its bearish track.

We believe the primary reason behind the fall in the company’s stock price is the recently reported dismal first-quarter fiscal 2017 results. Brown-Forman’s earnings for first-quarter missed estimates and declined year over year. Moreover, the company’s soft sales trend continued in the quarter mainly impacted by the persistent currency headwinds, tough economic conditions in emerging markets and the effects of the sale of Southern Comfort and Tuaca.

Notably, adverse currency movements, which are major threat for companies with overseas operations, hurt the company’s top-line growth for the fiscal by 2 percentage points. Further, the company anticipates currency headwinds to persevere in fiscal 2017, which is expected to bear about 3 cents per share negative impact on its earnings per share for the fiscal.

Going forward too, Brown-Forman expects the perils of currency headwinds and unstable emerging market conditions along with an uncertain global economic and geopolitical environment to linger and impact reported results.

We believe that all these factors triggered a downtrend in the Zacks Consensus Estimate for fiscal 2017 and the second quarter, which slipped 0.6% and 2%, respectively. Moreover, the stock price is down nearly 5.1%, since the earnings announcement.

However, the company remains confident of consistent growth in underlying net sales and operating income in fiscal 2017. The company anticipates this growth to come on the back of strong demand for its authentic American whiskey brands worldwide, consumer interest in flavored whiskey and a growing trend in premium spirits. Additionally, the company’s efforts to expand Jack Daniel's market share in the developed markets, along with its initiatives to refine its portfolio of brands, arouse optimism.

Whether or not Brown-Forman’s efforts will help in recovery of its performance remains a wait-and-watch story. Until then, investors can count on better-ranked beverage-alcohol stocks like Castle Brands Inc. (NYSE:ROX) , with a Zacks Rank #1 (Strong Buy), and Craft Brew Alliance Inc. (NASDAQ:BREW) , holding a Zacks Rank #2 (Buy). Also, Primo Water Corporation (NASDAQ:PRMW) , with a Zacks Rank #2, from the related beverage-soft drinks industry is a good investment option.

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