The S&P/ASX 200 Index (Index:^AXJO) lost ground in after lunch trade today but the Treasury Wine Estates Ltd (ASX: TWE) share price is hit harder.
The top 200 benchmark dipped 0.3% while shares in the alcoholic drink supplier slumped 4% to $10.52 after one of its biggest supporters downgraded the stock.
UBS cut its recommendation on Treasury Wines to "neutral" from "buy" on the back of management's dismal trading update.
Downgrades come in threes
The company expects FY20 EBITS (earnings before interest, tax, the agricultural accounting standard SGARA and material items) to range between $530 million and $540 million. This is around 6% below consensus forecasts.
That doesn't sound like much, but the broker believes there is a chance of a further profit warning for its Americas business.
The broker believes about 60% of the weakness in sales in that region is driven by the COVID-19 pandemic. But Treasury Wine is also losing market share and the industry is in oversupply.
While UBS still believes the stock represents a longer-term opportunity, it acknowledges the lack of near-term catalysts for the stock. The broker's price target on TWE is cut to $11.80 from $14.80 a share.
Powering down
Meanwhile, the AGL Energy Limited (ASX: AGL) share price is trading flat even as Macquarie Group Ltd (ASX: MQG) downgraded it to "underperform" from "neutral".
The fact that the electric utility isn't falling harder may be due to the perceived defensiveness of its business during these highly volatile times.
But AGL may be proving a false sense of security as Macquarie believes its earnings are at risk of falling when customer contracts come up for renewal.
Earnings shocker
Spot electricity prices are significantly lower than the contracted price due to weakening demand from ongoing recession (short-term impact) and the growth of renewables and battery storage (longer-term).
AGL's expiring contract with Alcoa only adds to its woes. The broker estimates that Alcoa is paying around $55 to $60 per megawatt hour under the contract and this could drop to circa $40/MWh when it resigns.
That equates to an up to $80 million earnings hit for AGL in FY22 if AGL resigns the aluminium producer as a client.
Macquarie's 12-month price target on the stock is $15.91 a share.
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