Pernod Ricard's 2026 Recovery: Is the Share Price Undervalued Amid Tariff Reductions and Destocking?

The global spirits industry is navigating a complex landscape of macroeconomic headwinds, inventory adjustments, and shifting trade policies. Pernod Ricard, the second-largest spirits producer by volume, has faced significant challenges in 2025, with organic sales declining 3% year-on-year to €10.96 billion, driven by soft demand in the U.S. and China [1]. Yet, beneath these headline numbers lies a story of strategic resilience and valuation potential. As the company anticipates a return to growth in the second half of 2026, the question arises: Is Pernod Ricard’s share price undervalued, given its margin resilience and industry positioning?

Navigating Tariff Reductions and Destocking

The U.S. and China have been pivotal to Pernod Ricard’s struggles. In the U.S., sales fell 6% in 2025, attributed to tariff uncertainty and subdued consumer confidence [1]. Meanwhile, China’s market contracted 21%, exacerbated by weak economic conditions and a suspension of Cognac imports in duty-free channels during an 18-month antidumping investigation [2]. These challenges have forced the company to address inventory overhangs, particularly in the U.S., where destocking efforts are underway.

However, recent developments offer hope. The conclusion of the Chinese antidumping investigation and anticipated tariff reductions are expected to ease inventory pressures and restore duty-free sales of Cognac by late 2026 [2]. While the company still faces an annual €80 million headwind from tariffs (down from a projected €200 million), these adjustments suggest a path to normalization.

Margin Resilience in a Downturn

Pernod Ricard’s ability to expand its operating margin despite declining sales underscores its strategic discipline. For fiscal 2025, the company achieved a 64-basis-point increase in organic operating margin, driven by a €900 million efficiency program and cost discipline [2]. This resilience is remarkable given the broader industry’s struggles. The spirits sector’s operating margin in Q1 2025 fell to 12.1%, a sharp decline from 20.94% in Q3 2024 [3], while Pernod’s operating margin held at 27% [1].

Gross margin performance also highlights Pernod’s operational strength. Despite a negative market mix (e.g., weaker premium spirits sales), the company leveraged cost-of-goods-sold efficiency programs to maintain a gross margin of 60% [2]. This contrasts with peers like Brown-Forman, which saw its operating margin drop 140 basis points to 28.2% in Q1 2026 [3], and MGP Ingredients, which experienced a 35.6% gross margin [3]. Pernod’s ability to insulate margins from external shocks positions it as a relative outperformer in a volatile sector.

Strategic Valuation: A Discount to Industry Averages

Valuation metrics further support the case for undervaluation. Pernod Ricard trades at a forward P/E of 14.37x and an EV/EBITDA multiple of 10.8x [2], below the spirits industry’s average EV/EBITDA of 11.63x [3]. Its EV/Revenue multiple of 3.1x [2] also lags behind the industry’s 3.30x [3], suggesting a discount to peers. This discrepancy may reflect market skepticism about near-term sales recovery but overlooks the company’s structural advantages.

For context, Diageo, Pernod’s largest competitor, trades at a 9.2x EV/EBITDA [2], while Pernod’s trailing P/E of 22.8x [4] is in line with historical averages for the sector. The company’s forward-looking guidance—anticipating a return to growth in 2026—could justify a re-rating if destocking and tariff-related headwinds abate as expected.

Conclusion: A Case for Strategic Optimism

Pernod Ricard’s 2026 recovery hinges on two critical factors: the normalization of trade policies in China and the U.S., and the successful execution of its efficiency programs. While near-term sales remain pressured, the company’s margin resilience and discounted valuation offer a compelling risk-reward profile. In an industry grappling with declining operating margins and inventory overhangs, Pernod Ricard’s disciplined approach to cost management and capital allocation positions it to outperform. For investors, the current share price may represent an opportunity to capitalize on a company poised for a rebound.

**Source:[1] Pernod Ricard shares jump as FY25 beat offsets soft FY26 [https://www.investing.com/news/earnings/pernod-ricard-flags-weak-start-to-2026-after-china-us-slump-4213848][2] Pernod Ricard: Financial Data Forecasts Estimates and [https://www.marketscreener.com/quote/stock/PERNOD-RICARD-4681/finances/][3] Alcoholic Beverages Industry Profitability [https://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=501]