Bill Chappell (left) and Ian Shackleton
Illustrations: Ben Kirchner
By Ryan Derousseau
February 28, 2013

Will a rising global affinity for bourbon mean high spirits for shares of Beam? Two analysts face off.

The bull: Bill Chappell, Suntrust Robinson Humphrey

“Beam has two factors in its favor. Before spinning Beam off in 2011, Fortune Brands (FBHS)invested to make sure it could work as a standalone company, giving it strong management, improved marketing, and even acquisitions. On top of that, it’s in a very attractive industry, with high barriers to entry. Plus bourbon — Beam’s specialty — is seeing a renaissance worldwide. Beam (BEAM) is in a position to benefit, as it earns almost 50% of its sales from overseas. The company expects 7% to 9% growth in earnings per share in 2013. We think that’s conservative, largely because spirits companies are increasing prices again. That will improve margins. Beam, now trading near $62, isn’t cheap compared with its peers. But the growth we’re seeing justifies this. Our target is $70.”

The bear: Ian Shackleton, Nomura Securities

“Clearly there are some positives. It’s a good industry, and Beam has some strong brands. But speculation that it could be a buyout target has increased the share price beyond Beam’s worth: It’s trading at 20.6 times earnings per share for 2014, while the industry average is 17.3 times. We don’t expect a bid in the short or medium term. Few potential suitors could afford Beam, which has annual sales of $2.8 billion. Plus, companies seem interested in some brands, like Jim Beam and Maker’s Mark, but not the entire portfolio. Finally, despite a rejuvenation of interest in bourbon, Beam has struggled in emerging markets. It touts about 15% of sales there, while Diageo commands 40%. We see a more reasonable price target of $55.”

This story is from the March 18, 2013 issue of Fortune.

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