The Treasury Wine Estates Ltd (ASX: TWE) share price has been on a tear recently but UBS thinks it can fly higher and highlights three things that can trigger the next rally.
While the Treasury Wine share price is trading 1 cent weaker at $17.22 during lunch time trade, it's outperforming the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index, which has fallen 0.6%, and is up a whopping 12% in the past month alone.
The global wine company provided a pleasing update yesterday to reassure investors that the weak Wine Australia export data doesn't reflect the group's good performance and management has reiterated its profit growth guidance for the year.
High growth at the right price
This is giving UBS confidence in its forecast with the broker tipping EBITS (earnings before interest, tax, the agricultural accounting standard SGARA and material items) growth of around 25% for FY19 and 21% for FY20.
You'd be hard pressed to find another large cap outside of resources with double-digit growth potential through FY20 and the stock's recent outperformance doesn't signal the end of Treasury Wine's share price run.
If anything, there are three potential catalysts that can trigger another share price spurt according to UBS.
3 share price catalysts
The first is cash flow. Naysayers think this will be an area of disappointment even as Treasury Wine's update has put to rest other risk factors that could send the stock tumbling, such as weakness in the Chinese market and Australian vintages.
If the group can deliver on its guidance and show there are no issues with cash flow, the stock could jump higher.
The second potential catalyst is merger and acquisition (M&A). UBS believes Treasury Wine has the firepower and willpower to do a takeover in the US or France. The group could cough up around $500 million for an acquisition.
Lastly, the stock could jump if management were to tighten its guidance range, added the broker.
UBS has an "outperform" recommendation on Treasury Wine with a 12-month target price of $19 a share.
I think Treasury Wine is well placed to outperform and provides good overseas exposure. I am overweight on stocks with material offshore earnings and this includes BlueScope Steel Limited (ASX: BSL), Brambles Limited (ASX: BXB) and James Hardie Industries plc (ASX: JHX).
