March 21, 2017 / 3:56 PM / in 9 months

BUZZ-MS takes shot of tequila, initiates coverage of Cuervo at equal-weight

** Morgan Stanley initiates coverage of Cuervo at equal-weight with a PT of M$34, and views its valuation (~13.6x EV/EBITDA and 24.3x P/E on a CY18e basis) as in line with global spirits peers

** The Mexico tequila distiller is “well-positioned to gain share within the attractive spirits category,” MS says, and its exposure to US and Canada markets (~68 pct of revenue), with high-growth tequila accounting for ~58 pct of sales account for broker’s ~6 pct long-term organic revenue growth

** MS views Cuervo’s positioning in the US tequila market less favorably due to its portfolio’s under-exposure to the fast-growing high-end tequila and silver tequila categories

** MS identifies FX, agave costs, macro volatility in Mexico, family control and potential US tax reform/NAFTA repeal as key risks

** Cuervo currently trades at M$32.56, or 4.2 pct below its Feb 9 IPO offer price of M$34 (Stephen Culp)

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