On Thursday the Costa Group Holdings Ltd (ASX: CGC) share price defied the market decline and pushed higher.
The horticulture company's shares ended the day around 0.5% higher at $3.00 following the release of a trading update.
What did Costa announce?
Costa advised that it has experienced a robust trading performance year to date.
Management revealed that the company is performing above budget for the first quarter of 2020 and significantly ahead of the prior corresponding period.
Furthermore, it advised that current trading remains positive overall, though some supply chain and market volatility exists across the different product segments of its portfolio.
However, despite its positive start to the year, management notes that the current high level of uncertainty and volatility in the social and economic environment means it is not possible to provide meaningful forward financial forecasting with any reliable accuracy.
In light of the ongoing uncertainty regarding the extent, duration, and potential impact of future government restrictions, it feels it is appropriate that it withdraws its previous guidance for the 2020 financial year.
Should you buy its shares?
Whilst I've been pleased with its performance in 2020, the uncertainty that lies ahead does make it difficult to invest with confidence.
And with its shares changing hands at 22x estimated FY 2020 earnings, they are certainly not cheap. As a result, I would class Costa as a hold for the time being and wait for a further update later this year.
Someone else that is sitting on the fence at the moment is Goldman Sachs. This morning the investment bank reiterated its neutral rating and $3.25 price target on its shares.
Goldman explained: "CGC's decision to back away from quantitative guidance is no surprise given uncertainty around some of its markets. We are yet to see harvest completion in its African Blue (Morocco) operations which sell into many potentially volatile European/UK markets."
The broker also sees potential headwinds in Japan and the United States.
"The domestic citrus and Avocado seasons are about to kick off. About 70% of CGC's citrus crop is exported, mainly to Japan and the US, which may also be disrupted. Blueberry volumes are about to start from FNQ and there is risk around whether CGC's can maintain the c.20% price premium for its Arana blueberries in the current environment," it added.
Another concern is higher potential costs during the pandemic.
Goldman noted: "CGC has secured sufficient labour for picking and packing across its operations but is likely to experience higher costs with 14 day quarantines and social distancing required, a limited labour availability due to international border closures."
I think Goldman Sachs makes some very good points and would suggest investors wait to see how things unfold over the coming months before jumping in.
