Goldman Sachs sees more pain for the Treasury Wine (ASX:TWE) share price

The Treasury Wine Estates Ltd (ASX: TWE) share price has halved in the last 12 months but Goldman Sachs thinks there could be more pain ahead.

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The Treasury Wine Estates Ltd (ASX: TWE) share price has halved in the last 12 months as China-related policies continue to depress the company's earnings and growth trajectory.  

While previous broker updates were cautiously optimistic for the Treasury Wine share price, the latest data from Goldman Sachs points to more risks ahead. 

US wine sales moderating 

Nielsen provides suppliers, importers, distributors and retailers with comprehensive US retail wine sales and direct-to-consumer wine shipment data.

The latest figures from Nielson point to moderating wine sales at the industry level after an extended period of COVID-19 driven growth. However, Treasury Wine sales captured continued to underperform the market, said Goldman.

The broker noted that the appreciating Australian dollar is likely to make the company's exports less competitive in key markets compared to other export competition. The Australian dollar/US dollar has rallied to an almost 3-year high of 77 cents in recent weeks. 

China woes continue 

Goldman describes the significant changes in trend in the China related data as 'unsurprising'. It notes a slowdown in both Chinese imports from Australia and Australian alcohol export data. However, the full extent of the impact of the temporary deposit measures from China will only be known in the company's next update.

The report also noted the effects of the rising Australian dollar is also impacting its Chinese pricing, with an increase in key products on Chinese e-commerce websites. 

Lower Treasury Wine share price target 

As a result, Goldman's 12-month price target was lowered to $8.60 or a downside of 4.7% to its current price of $9.01, at the time of writing.

The broker outlines a number of upside and downside risks that could play out 2021. Key upside risks include a decline in the Australian dollar, a faster recovery of trading in the US operations and better than expected outcome from the final stage of China's anti-dumping investigation. 

While key downside risks included further deterioration in China's trade dispute and macro, further execution issues from direct strategy in the US, risks of misalignment of significant inventory build with demand, margin pressure from retail partners and further appreciation of the Australian dollar. 

Motley Fool contributor Lina Lim 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 has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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