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Treasury Wine Estates share price jumps 8% on profit guidance update

On Thursday the Treasury Wine Estates Ltd (ASX: TWE) share price was one of the worst performers on the ASX 200 with a decline of almost 5%.

It has been a very different story for the wine company’s shares today, though. In morning trade the Treasury Wine Estates share price is up 8% to $15.40.

Why is the Treasury Wine Estates share price surging higher?

Yesterday the Treasury Wine Estates share price tumbled lower following the release of an update from U.S. rival Constellation Brands.

Constellation Brands shares were sold off on Wall Street after it fell short of expectations in its third quarter. This was largely the result of weakness in the company’s wine segment which has faced challenging conditions at the lower of its wine portfolio, where sales have been “flat or down.”

This appears to have sparked fears that Treasury Wine Estates was struggling and falling short of expectations itself.

The good news is that this hasn’t been the case. Management sought to allay concerns yesterday with the release of a trading update after the market close.

According to the release, management is “very happy with the trading performance across all operating regions.”

As a result of the positive trading, it advised that its first half result is expected to come in ahead of consensus estimates.

It said: “The results for 1H19 will reflect a performance above consensus EBITS of A$332m, and will be within the range of A$335m to A$340m; and full year guidance of approximately 25% reported EBITS growth for fiscal 2019 is reiterated.”

Given how volatile its shares have been of late, I think it was a great move by management to release its half year expectations and guidance for the full year.

Should you invest?

While Treasury Wine Estates’ shares are not cheap, I feel the quality of the company and its solid growth prospects make it worthy of the premium.

In light of this, I continue to see it as a buy along with consumer staples sector peers A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL).

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of A2 Milk. 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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