Is Jose Cuervo the tequila stock to own? The world’s largest tequila producer isn’t even publicly traded at the moment, so the question, for now, is a rhetorical one.
However, Bloomberg has reported that Mexico’s Beckmann family, who own Casa Cuervo, the company behind the brand, have hired investment bankers to take it public.
Whether the initial public offering is in the U.S., Britain or Mexico is still up for discussion, but estimates put the capital to be raised at a figure approaching $1 billion. Should it IPO in the U.S. sometime in the second half of this year, it would easily be one of the largest in 2016.
Given the popularity of tequila, especially the premium stuff, you can bet that Jose Cuervo stock will be a hot commodity at retail brokerage offices across the U.S. and elsewhere. Any pricing would be at the high-end of the estimated range set by bankers handling its IPO.
But before attempting to answer whether Jose Cuervo is the tequila stock to own let’s consider the tequila market itself.
In 2015, 14.8 million 9-liter cases were sold in the U.S., which amounts to 133 million, 1-liter bottles, or 2.25 billion two-ounce shots. That services a lot of frat parties. In terms of wholesale supplier revenue that translates into $2.3 billion in the past year alone, about 140% higher than the $962 million in 2003.
The big winner in the tequila sweepstakes over the last 12 years is the super-premium segment of the market, which has seen revenues grow 591% to $968 million. This segment accounted for 42% of the overall revenue in 2015.
To put this growth in perspective, the premium market had revenue of $606 million in 2003, $466 million more than the super-premium market, but in 2015, super-premium tequila generated $115 million more than the premium segment.
According to FONA International’s 2016 Trend Insight Report, 52% of men and 38% of women drink tequila with millennials a big part of the white spirit’s renaissance in the world of alcoholic beverages.
They call it the “Mad Men effect,” but millennials are drinking more types of spirits than any previous generation and that’s a good thing for brands like Jose Cuervo because millennials also just happen to be the largest generational cohort, ever. Cha-Ching!
Where Does Jose Cuervo Stack up in the World of Tequila?
Well, we already know that it’s the world’s largest producer of tequila controlling 33% of the global market share. Together with Sauza, owned by Japan’s Suntory Holdings, the two companies control 80% of the premium tequila market, the second-largest category behind super-premium tequila.
Patron, majority owned by Los Angeles billionaire John Paul DeJoria, “controls 70% of the super-premium market,” but some of the world’s biggest liquor companies and some not so big are nipping at its heels.
Super-premium tequila is such an important category that in 2014, Diageo plc (ADR) (DEO) traded its Bushmills Irish Whiskey brand to Casa Cuervo in exchange for $408 million and the 50% of Don Julio it didn’t already own. That deal signaled tequila had arrived. Since then, Don Julio has seen its cases sold increase to more than 305,000 in 2015, but still considerably less than the 2.1 million from Patron.
Jose Cuervo is no Patron, but given Diageo was prepared to pay more than $3 billion for Jose Cuervo back in 2012 when its annual sales were $482 million (6.2 times sales), it stands to reason that at $829 million in 2015, Cuervo could be worth as much as $5.2 billion.
Offering $1 billion to the public in its IPO is the equivalent of 20% of the company. If the ultimate offering price works out to less than 6.2 times sales, I’d be very tempted to buy despite the fact I’m no fan of IPOs.
Tequila is for real. That’s all you need to know.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
More From InvestorPlace
- 30 Stocks the Smart Money Just Bought or Dumped
- Hillary Clinton vs. Donald Trump – Which Stocks Win?
