Pernod Ricard Reports Strong First Half and Offers Shelter From Inflation but Shares Fully Priced

Pernod Ricard reported another strong performance in the first half of fiscal 2022, with impressive sales growth in Europe that was above our estimate. We are raising our fair value estimate to EUR 167 from EUR 160 after increasing our revenue growth assumption in the second half of the year (EUR 5 of the valuation increase), as well as the impact of the time value of money (EUR 2). These results show the strengths of Pernod's categories. Low price elasticity in spirits makes Pernod better positioned than most large cap consumer product manufacturers to navigate the current input cost inflation. However, the stock seems priced for uninterrupted growth, and with spiking inflation likely to eat into disposable incomes over the next year or two, we do not believe the shares offer investors an attractive risk/reward profile at current levels.