Brown-Forman (BF.A, BF.B) is facing headwinds from structural declines in alcohol consumption, an oversupply of American whiskey, rising competition, and increasing costs that are weighing on its topline, Morgan Stanley said in a Thursday note.

The analysts estimate that gross margins could decline by 100 to 150 basis points year-over-year in fiscal 2027 due to higher costs, muted pricing power, and a growing ready-to-drink mix.

The company's fiscal Q3 earnings beat was largely driven by distributor inventory stocking rather than underlying demand, with adjusted sales roughly flat year-over-year, Morgan Stanley said, adding that efforts to ease cost pressures through supply-chain changes will take time to show results

Morgan Stanley slightly raised its fiscal 2026 earnings estimate for Brown-Forman due to a lower tax rate and favorable foreign exchange, but lowered its fiscal 2027 forecast on expected margin pressure.

The firm maintained its underweight rating on the stock and lowered its price target to $27 from $29.