The Treasury Wine share price is at a 5-month high: Is it a buy?

The Treasury Wine Estates Ltd (ASX: TWE) share price reached a 5-month high of $16.82 last week after it suffered a beating late last year following a “slowdown on clearance of imports into China” that delayed the replenishment of Chinese inventory levels.

Many brokers are sceptical about Treasury Wines’ ability to deliver meaningful results given their current valuation. A Goldman Sachs recommendation released on January 7, 2019 rates the company as neutral with a target price of $13.40. This represents a downside of 18% to the current share price of $16.32.

Goldman Sachs cites similar fears including China’s slowing macro environment and weakness in the Americas region.

On the flip side, Treasury Wines did announce a performance upgrade on January 10, 2019. The company reported its consensus EBITS to be in the range of A$335 million to A$340 million compared to A$332 million. They also reiterated that full-year guidance will be approximately 25% reported EBITS growth for FY19.

So what can we make of this information?

Bull case

Treasury Wines currently trades at a P/E ratio of 32x FY18 earnings. Given its recent trading update, it is unlikely that the company will have an earnings surprise. Here are some areas that make a bull case.

The company has a new operating model initiative for the volatile Americas region. This new strategy could pay dividends and pave the way for more consistent sales growth.

Australian wine exports have climbed 10% to $2.82 billion in 2018. A large contributor to this growth has been Treasury Wines’ Penfolds and Wolf Blass brands into China.

There has been a global shift on consumption from cheap or commercial wines to more premium wines, which works favourably for Treasury Wines.

Bear case

Treasury Wines does carry a relatively expensive valuation which comes with significant risks. While it is true that investors should not expect any surprises to the companies FY18 performance, the guidance will defy where the share price goes. Some areas of concern include:

  • Will issues regarding logistics and import clearance persist in China?
  • Does a slowing Chinese economy impact the company’s bottom line?
  • Brexit could spell trouble for Treasury Wines as new customs procedures between Britain and EU could clog logistics
  • The Americas operations revamp is still in its early days and the initial impact of this revamp was negative growth for the region.

Foolish Takeaway

In my view, investing in Treasury Wine Estates at this point in time poses greater risks than a few weeks ago.

I believe investors should wait for the company to release their annual report on February 14 before making an investment decision.

The guidance will be key in determining if Treasury Wines is still a growth machine or value trap. After all, we have seen companies miss expectations and plummet more than 30-40% in the past.

OUR #1 dividend pick to grow your wealth in 2019 is revealed for FREE here!

Our top dividend stock pick for 2019 currently boasts a 5.4% dividend yield (fully franked). I believe it’s a perfect fit for a well-diversified, income-focused portfolio.

Even better, this yield comes attached to an attractive and still-growing business which could keep expanding throughout Australia and New Zealand for years to come. With disciplined management, and a long track record of building wealth for shareholders, this company is a serious candidate for any income-minded investor’s portfolio.

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and 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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!