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Home drinking is still boosting liquor sales, but investors need to think about what happens next. Pernod Ricard is in good shape as the pandemic trend slows.

On Wednesday, the maker of Jameson Irish whiskey and Absolut vodka said sales for the year through June increased 10% at constant exchange rates, compared with the previous 12-month period. Even though alcohol purchases in travel hubs like airports are weak, Pernod’s total revenue and operating profits are back to precrisis levels.

The Paris-listed company’s sales rose 16% in the U.S., its largest market and the industry’s largest profit pool. That was below the 24% growth Diageo’s U.S. spirits business saw for the same period, UBS noted. Pernod sells more alcohol through bars and restaurants than its big London-based rival, so has been hit harder by shutdowns.

This should reverse as people head back to night venues. Industry data is already showing a slowdown in purchases made for home drinking. Jameson, one of Pernod’s most important brands, makes one-third of its U.S. sales in bars, much higher than the 20% average for liquors.

Spirits stocks have been somewhat unlikely pandemic winners, as drinking has moved to the home. Liquor has been taking share of the wider alcohol market from beer in the U.S. for two decades, but doubled its average annual gains to 1.1 percentage point in 2020, Bernstein analysis showed. Profit margins got a boost as drinkers bought more expensive brands than usual. Three glasses of Jameson in a bar is equivalent to the cost of the entire bottle at home, so consumers traded up.

Investors’ expectations are high: Europe’s four big liquor stocks currently trade anywhere from 34% to 58% above their 10-year averages as a multiple of future earnings. That compares to more muted 23% premiums for brewers Heineken and Carlsberg.

The pandemic has boosted trends in liquor stocks’ favor, but it is far from clear that drinkers will continue to buy such expensive alcohol in stores now that city nightlife is reopening. With its skew to out-of-home drinking, Pernod may be a surer bet than its peers as barflies return.

This story has been published from a wire agency feed without modifications to the text

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