Treasury Wine Estates Share Price: Morgan Stanley’s Revised Thesis

A bitter time for the Treasury

The past twelve months have been volatile for Treasury Wine Estates (TWE) as a confluence of factors has prompted investors to abandon the stock. Note that even though the winemaker saw his stock price drop by around 34% over this period, some analysts remain optimistic about the company’s upside potential.

Looking back, in March the company withdrew its earnings growth forecast (EBITS), in April and May the company revealed that it was the subject of two class action lawsuits between shareholders; and last Thursday, as part of its latest business update, TWE revealed that it expects year 20 profit (EBITS) to be in the range of $ 530 million to $ 540 million.

For reference, during fiscal year 2019, the Treasury reported an EBITS of 681 million.

Remember, with earnings expected to lag in fiscal 2020, the iconic Australian winemaker and distributor has seen some positive trends emerging in recent times.

On the one hand, in China both consumption and depletion have trended upward from their February-March lows; in the United States, retail sales have experienced impressive growth in value and volume since March; and in Australia, the performance of the retail channel remains strong, although the company’s luxury wine segment struggled compared to FY19.

Elsewhere, the company said ongoing work on the previously announced Penfolds spinoff continues to “validate the expectation that value will be created through a separate focus for Penfolds and other TWE brands, globally.” .

The final annual Treasury results are expected to be released in August.

Regardless of the above points, investors offered the stock lower following last week’s trade update, falling 2.9% and 3.9% on Thursday and Friday to end the week at $ 10,520 per share.

On Monday, the stock opened higher, trading around 3% just before noon.

Treasury Wine Estates share price: broker takes

In a note released Monday, analysts at Morgan Stanley (MS) argued that while the outlook for TWE remains somewhat uncertain, the company is benefiting from a good valuation of its wine stocks and wine assets; and is currently trading at a compelling multiple based on its own historical averages, global peers and the wider Australian market. TWE is currently trading at an FY22 price / earnings multiple of around 17x, compared to its global peers of around 22x, according to MS.

Aside from valuations, the investment bank noted that “a sustained revaluation will require heightened belief that management can stabilize US activity.” In addition, there is a possibility of short-term disruption of the “Australia brand” for the Chinese consumer and on that basis we may be ahead. “

Despite these headwinds, Morgan Stanley currently has an overweight rating (up from the same weight) and a price target of $ 13.50 on the Treasury.

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