Alcohol sales may be surging during the pandemic, but Brown-Forman (NYSE:BF.A)(NYSE:BF.B) isn't expected to benefit, and one analyst says its current valuation doesn't reflect the risks it faces from COVID-19 or the recession which most economists believe is already underway.

Early Wednesday morning, UBS analyst Sean King downgraded Brown-Forman to sell from his previous neutral rating, and cut his price target on the more widely traded Class B shares from $64 -- close to where they currently trade -- to $56. The distiller owns a portfolio of brands including Jack Daniel's whiskey, Woodford Reserve Kentucky bourbon, and Finlandia vodka.

Glass of whiskey on a barrel

Image source: Getty Images.

Over a barrel

While data from Nielsen shows that U.S. consumers are buying more alcohol during the coronavirus pandemic, it's primarily hard seltzer sales that are rising -- that sub-category's sales surged 311% year-over-year for the week ending May 16. Hard seltzer now accounts for 9% of all beer category sales.

Moreover, 44% of those buying hard seltzers during the pandemic are new to the category, twice the percentage of new buyers trying the beverage prior to COVID-19.

Other alcohol categories have also gotten a lift: Spirits sales generally are up 34% while wine sales are 30% higher. But the issue causing Brown-Forman's suffering is the closure of restaurants and bars.

In King's memo downgrading the distiller's stock, he asserted that the company's fiscal 2021 (which began May 1) will be a "trough year" as the on-premise closures present short-term hurdles while issues such as reduced air travel will lead to headwinds further out. 

Those factors, coupled with changing consumption patterns, limited pricing power, and the growing popularity of "category substitutes" like hard seltzer, make Brown-Forman's immediate future look as dark as its Jack Daniel's whiskey.