Is Treasury Wine Estates Ltd a good bet?

The wine producer jumped today after announcing a major restructure that will save $50m in costs, but will the news help ease concerns about the stock’s full valuation after its stellar run?

| More on:
a woman

Shares in Treasury Wine Estates Ltd (ASX: TWE) jumped today after it announced additional savings measures that are forecast to reap $50 million in savings over the next five years for the wine producer.

The stock climbed 1.6% in early trade to $5.24 on the news as management outlined plans to consolidate and divest parts of its operations in the United States and Australia.

The targeted savings are significant given that analysts are forecasting a net profit of around $164 million for 2015-16 and could help ease concerns that the stock is overvalued with 10 out of 12 brokers polled on Reuters rating the stock a “hold” or “sell”.

Treasury Wine’s Australian properties such as the Ryecroft winery, T’Gallant and Bailey’s will be sold, while production at its Asti winery in California will cease.

The packaging and warehousing facility at Mildura, Victoria, will also close as operations will be consolidated at the company’s Wolf Blass plant in South Australia.

The restructure will cost the company $35 million and there will be job losses, although Treasury Wine did not provide any details.

Coincidentally, management had flagged $35 million in overhead cost savings for 2014-15 and said that it has identified a further $15 million in savings that can be realised in the next financial year.

The stock is up by nearly 50% in the past year as headwinds caused by a global supply glut and the high Australian dollar eased. The perception that Treasury Wine is a takeover target is also giving the stock a boost.

To put the gain in context, even the superstars of the ASX such as Commonwealth Bank of Australia (ASX: CBA) and blood products company CSL Limited (ASX: CSL) are struggling to keep up. CBA is up by 21% and CSL is up by 35% over the past year.

News of the streamlining of its operations will provide another tailwind for the stock and will prompt analysts to upgrade their forecasts for the stock.

However, this is unlikely to address shorter-term overvaluation concerns as the bulk of the $50 million savings will be over the next few years. In the meantime, Treasury Wine still has to contend with its 2015-16 consensus forecast price-earnings multiple of 22x and a pretty skinny yield of around 2.5%.

Fortunately, the experts at Motley Fool have identified better value stocks with a more attractive dividend yield. Sign up for free below to see what they are.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Motley Fool contributor Brendon Lau owns shares in CSL. Follow me on Twitter - https://twitter.com/brenlau We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing