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Treasury Wine Estates Ltd (ASX:TWE) shares sink on broker downgrade

The market may have pushed higher today but unfortunately the Treasury Wine Estates Ltd (ASX: TWE) share price wasn’t able to follow suit.

The wine company’s shares finished the day 2.5% lower at $18.28.

Why did its shares drop lower?

Investors appear to have been hitting the sell button today following the release of a broker note out of Goldman Sachs.

According to the note, the broker has downgraded Treasury Wine Estates’ shares to a sell rating with a slightly lower price target of $14.20.

This price target implies potential downside of over 22% from today’s close price.

Goldman Sachs made the move on the back of its recent strong share price performance. Its analysts believe that its shares have got ahead of fundamentals and feel they are expensive against all valuation metrics and peer comparisons.

Furthermore, while Goldman expects the company to meet its FY 2018 forecasts in August, it does see risks to its medium-term earnings and is concerned that this hasn’t been reflected in its share price.

These risks include recent data showing declines in market share in the United States and excess inventory, online discounting, and a complex market structure to contend with in China.

In respect to the latter, the broker is a touch concerned that its medium term growth in China could be impacted if it needs to recalibrate its distribution strategy in the massive market.

Should you sell your shares?

As I mentioned here yesterday when writing about Credit Suisse downgrading Treasury Wine Estates’ shares, I wouldn’t be in a rush to sell all my shares if I were a shareholder.

However, I do think it could be an idea to take a bit of profit off the table ahead of earnings season, just in case its guidance for FY 2019 isn’t as strong as expected.

I would suggest investors consider reinvesting these funds in A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) shares after recent pullbacks.

Alternatively, one of these top shares could be a great option for investors.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Treasury Wine Estates Limited. 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 policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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