There Is Value In Vodka

What Lies Ahead
In addition to the earnings growth expected in 2008-2009, management feels sales could be upward of $2 billion by the end of next year, an increase of 67% in just 21 months. While I don't think CEDC can keep this pace up forever, I see no reason why it can't average sales growth of 19% annually (equal to the EPS growth) over the next five years. It is the largest producer of vodka in Poland selling 9.3 million nine-liter cases, the largest in Hungary as well and in March completed its purchase of 85% of the stock in Parliament Vodka, one of Russia's leading premium brands. Business is becoming more diverse. In the second quarter, non-Polish sales accounted for 17% of its business, up from 2.7% in the same quarter last year. It's gradually becoming a player on the European stage.

Bottom Line
As I said earlier, there are three additional candidates for those who view CEDC as minor league which right now I don't. But here are the numbers for the sake of comparison Femsa's intrinsic value is $62.56, Fortune Brands is $75.03 and Molson Coors $50.62. Using October 22 closing price they are trading at discounts of 61%, 52% and 23% respectively using the same intrinsic valuation. I wrote about the CEDC back in 2004 and despite this summer's swoon, it has still outperformed the S&P 500 during this time by a considerable margin.

The $40 dollar haircut it has taken in just four months seems unwarranted and more resembles an overreaction to a potential global recession. Russia may be hurting but it doesn't mean they'll stop drinking vodka. The same goes for Poland. Who knows, if things get really bad, even teetotalers may be driven to drink.