WSJ Heard on the Street — Liquor Stocks Are Priced for a Big Tobacco Moment
Diageo and Pernod Ricard now trade at tobacco-like earnings multiples on fears that alcohol is in terminal, cigarette-style decline — but RTD and smaller-pack strength suggests part of the volume drop is squeezed budgets, not abstinence, making the de-rated leaders a contrarian buy.
One-line take: Shares in Diageo (DEO) and Pernod Ricard (PRNDY) now trade at tobacco-like valuations — Pernod is cheaper on expected earnings than British American Tobacco (BTI) and Altria (MO); Diageo's multiple is at 2009 levels — priced as if spirits face the same terminal decline as cigarettes. US spirits volume has fallen four straight years amid moderation, wellness, GLP-1s and legal-buzz substitutes, but a booming ready-to-drink (RTD) canned-cocktail category (+20–30%/yr, ceded to brewers like AB InBev (BUD)) and smaller-pack strength suggest part of the drop is affordability, not abstinence — "Gen Z wants to drink." Ryan's read: bad news is priced in, and the de-rated leaders — especially Diageo, with EM/India growth and a new-CEO strategy due this summer — belong in "a balanced mix, especially at these prices." (A WSJ columnist's piece — stances below: DEO & PRNDY framed Positive as contrarian-cheap; BUD, Brown-Forman and the tobacco benchmarks Neutral.)
1. Stocks & names mentioned
A written WSJ Heard on the Street article (no video), so the "At" column links to the article rather than a timestamp. DEO & PRNDY are the contrarian-cheap subjects; BUD is the RTD beneficiary; Brown-Forman and the tobacco names (BTI, MO, PM) are valuation benchmarks. Research legend: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis.
| Ticker | Name | Research | View | What the article said | At |
|---|
| DEO | Diageo | QT · SA · STK · FA | Positive | The column's key contrarian-cheap name (Casamigos, Guinness, Johnnie Walker). Earnings multiple "languishing at 2009 levels" — now tobacco-like. Big emerging-market/India presence still sees healthy demand; new CEO to unveil a fresh strategy later this summer, including more affordably-priced new products. "Bad news is priced in." | read ↗ |
| PRNDY | Pernod Ricard | SA · STK | Positive | Jameson & Absolut owner (OTC ADR). As a multiple of expected earnings now cheaper than British American Tobacco and Altria — the tobacco-like valuation is precisely the opportunity if alcohol is not heading for the cigarette scrap heap. | read ↗ |
| BUD | AB InBev | QT · SA · STK · FA | Neutral | Budweiser brewer; owns Cutwater Spirits, the booming RTD (canned-cocktail, +20–30%/yr) winner distillers ceded to brewers — brewers have existing canning lines and better RTD margins than beer. Named as the RTD beneficiary, not an explicit pick. | read ↗ |
| BF.B | Brown-Forman | QT · SA · STK · FA | Neutral | Jack Daniel's owner; "faring better" at 16× projected earnings — less distressed than Diageo/Pernod, but still significantly cheaper than Philip Morris International. | read ↗ |
| BTI | British American Tobacco | QT · SA · STK · FA | Neutral | Valuation benchmark: Pernod Ricard now trades below BTI's price/earnings multiple — the marker of how far spirits have de-rated toward tobacco. | read ↗ |
| MO | Altria | QT · SA · STK · FA | Neutral | Marlboro owner; valuation benchmark: Pernod Ricard now trades below Altria's price/earnings multiple. | read ↗ |
| PM | Philip Morris International | QT · SA · STK · FA | Neutral | Valuation benchmark on the healthier end: Brown-Forman at 16× is still significantly cheaper than Philip Morris International. | read ↗ |
2. Talking points
The frame — liquor priced like tobacco
- Alcohol makers have urged people to "drink responsibly" for years — and the message is landing. Shares in Diageo (Casamigos) and Pernod Ricard (Jameson) now trade at tobacco-like valuations. Unless you believe alcohol is heading for the same scrap heap as cigarettes, that's a chance to buy cheaply.
Four straight down years for US spirits volume
- US spirits volume has declined four straight years (IWSR) — the setup that has spooked the market into pricing terminal decline.
Affordability — $20 cocktails and the on- vs off-premise gap
- On-premise (bar/restaurant) spirits prices are up +29% over five years (Bernstein) — $20 cocktails becoming the norm. But instead of trading down to drinking at home, consumers are cutting back altogether, even though off-premise (grocery/liquor-store) prices are up only 9% in five years.
Why this isn't 2009–10
- Different from the post-GFC period, when volumes kept growing as people traded down and drank at home. This time the pullback is showing up as outright abstention, not substitution — which is what makes the market fear a secular break.
Wellness & Gen Z moderation
- Wellness is changing attitudes: Gen Z drink moderately (one or two, home early) or socialize alcohol-free. Tracking devices (Oura rings, Fitbits) reveal downsides like disrupted sleep, reinforcing the pullback.
An all-time-low share of drinkers
- The share of Americans who say they drink hit an all-time-low 54% in 2025 (Gallup).
Structural substitutes — GLP-1s, cannabis, no/low-alcohol
- GLP-1 weight-loss drugs reduce drinking. Legal buzz alternatives — cannabis / THC-infused drinks in legal states — compete for the occasion, and low/no-alcohol drinks are growing much faster than the overall industry.
The counter-signal — RTD canned cocktails are booming
- Ready-to-drink (RTD) canned cocktails are booming, +20–30%/yr in the US (Mitch Collett, Deutsche Bank Research). Gen Z like RTDs for convenience/affordability — a 12-pack of Cutwater Spirits margaritas (~$25 at Walmart) vs buying multiple bottles. Bernstein's Nadine Sarwat: "The category is telling us something…Gen Z wants to drink." RTD and smaller-pack outperformance suggests part of the volume drop is squeezed budgets, not abstinence.
Distillers ceded RTDs to the brewers
- Publicly traded distillers have been slow on RTDs, which are dominated by beer companies and private spirits firms — Cutwater is owned by Budweiser brewer AB InBev. Distillers hesitate because canned cocktails carry lower margins than bottles; brewers love them (more lucrative than beer, plus existing canning facilities).
The fad risk — boom/bust categories
- Alcohol trends go boom/bust (craft beer, hard seltzers fizzled), so distillers building long-term brands risk over-investing in a fad — a real dilemma alongside the RTD margin problem.
The tobacco-premium collapse — the specific multiples
- Distillers used to trade at a big premium to tobacco (especially after the 2017 FDA cigarette-crackdown plan); that gap has nearly vanished. As a multiple of expected earnings, Pernod Ricard is now cheaper than British American Tobacco and Altria; Diageo's multiple is at 2009 levels; Jack Daniel's owner Brown-Forman is faring better at 16× projected earnings — still significantly cheaper than Philip Morris International.
The contrarian conclusion — bad news priced in
- Outlook murky but bad news is priced in. Diageo (big emerging-market/India presence) still sees healthy demand elsewhere, and its new boss will unveil a fresh strategy later this summer, including more affordably-priced new products. Not the time to "binge" on spirits stocks — but they can be part of a balanced mix, especially at these prices.
3. In plain English
A jargon-free summary of how each name is framed in the article. (Plain-language companion to the table above; renders on the ticker's consolidated page.)
DEO — Diageo Positive
Diageo makes Casamigos tequila, Guinness and Johnnie Walker. Its stock has been hammered because US spirits sales have fallen four years running and investors now fear alcohol is in slow, permanent decline — the way cigarettes are. So they've marked the shares down to the same cheap "terminal-decline" valuation as tobacco companies; Diageo's earnings multiple is back at 2009 levels.
Ryan's argument is that this is overdone. A lot of the drop looks like people being priced out (bars now charge $20 for a cocktail) rather than swearing off drink for good — and canned cocktails aimed at younger drinkers are selling briskly, which says Gen Z still wants to drink. Diageo also has a big, still-growing business in emerging markets and India, and a new CEO is about to lay out a fresh plan this summer with cheaper new products. In short: the bad news is already in the price, making Diageo the standout cheap name — one to own as part of a balanced mix, not to pile into.
PRNDY — Pernod Ricard Positive
Pernod Ricard owns Jameson whiskey and Absolut vodka (this is its US over-the-counter listing). Like Diageo, it has been sold down so hard that, measured against expected earnings, it is now cheaper than tobacco giants British American Tobacco and Altria — an extraordinary place for a spirits company to trade.
The whole point of the article is that this only makes sense if you truly believe drinking is dying off like smoking. If you don't — and the booming market for canned cocktails and smaller packs suggests younger people are just spending less, not quitting — then a global spirits leader at a tobacco valuation is a bargain. Ryan frames it as cheap rather than broken.
BUD — AB InBev Neutral
AB InBev is the brewer behind Budweiser — and, importantly here, the owner of Cutwater Spirits, one of the canned-cocktail (RTD) brands that are growing 20–30% a year while bottled spirits shrink. The article's twist is that the distillers largely missed this boom: brewers grabbed it because they already have canning lines and because canned drinks earn better margins for a brewer than beer does (but worse margins for a distiller than a bottle). So AB InBev is named as the company profiting from where younger drinkers are actually spending — a beneficiary of the trend, not a stock the column explicitly recommends.
BF.B — Brown-Forman Neutral
Brown-Forman owns Jack Daniel's. It gets a passing mention as the spirits maker that is holding up better than its bigger rivals — its shares trade at about 16 times expected earnings, so it is less distressed than Diageo and Pernod, but even so it is still cheaper than tobacco company Philip Morris. It's used mainly to show the spread within the sector rather than singled out as a buy.
Summary derived from the public WSJ article (full text saved in transcript.txt) for personal study. Not investment advice. © The Wall Street Journal / Dow Jones for source material.