Key points
- Treasury Wine shareholders, have lost almost 15% since January 1
- Morgan's is constructive on the company, and see's a potential of 34% at the current share price
- The broker positive with its recent acquisition of Frank Family Vineyards
- Goldman Sachs isn't as positive on the Frank Family Vineyards transaction and is neutral on the stock
The Treasury Wine Estates Ltd (ASX: TWE) share price is rangebound from the open today and is now trading at $10.57 apiece.
Lately however, it's been a bloodbath for Treasury Wine shareholders, having lost almost 15% since January 1 and more than 15% in the last month of trading.
Shares in the wine specialist fell off the cliff-face in early January, amid a brutal ASX selloff that disproportionately hurt high-beta names like the company and its peers in the S&P/ASX 200 Consumer Staples Index (XSJ).
Treasury Wine leads the broad index in losses this year with the wider sector booking a 9% dip into the red since we commenced trading in 2022.
So what's next for the listed-liquor player – whose portfolio includes brands like Penfolds, Beringer, Lindemans, Wolf Blass and Rosemount Estate and many more – in 2022? Let's take a look.
What's next for Treasury Wine Estates?
There's no denying that January 2022 has been one to forget with respect to the stock market and its ability to create wealth.
In fact, if global markets close down again today, it will mark the worst January performance on the major indices on record – that's something to think about.
Hence why the team at Morgan's is constructive on the Treasury Wine share price, and see's a potential of 34% upside with its valuation of $14.06 on the stock.
"TWE has the China reallocation risk and it will take 2-3 years to recover these earnings in new markets. However once it comps China earnings, we expect TWE to deliver strong earnings growth from the 2H22 onwards" Morgans said in a recent note.
"Organic growth will be supplemented by [merger and acquisition activity] M&A", the broker says, noting strengths of this to the company's earnings profile.
With respect to the company's recent M&A activity, Morgans was positive with its recent acquisition of Frank Family Vineyards, claiming the "high margin business" should accelerate Treasury Wine's efficiency goals.
"We view TWE's recent acquisition of Napa Valley luxury wine business, Frank Family Vineyards (FFV) as strategically important" Morgans said in an update to clients.
"This high margin business should see [Treasury Wine] achieve its US margin target two years earlier than planned."
Meanwhile, Goldman Sachs isn't as positive on the Frank Family Vineyards transaction. The fellow broker had a mixed reaction to the company's decision to tuck the smaller entity into its current portfolio of luxury brands.
Goldman also noted the deal could add in additional e-commerce capacity and is parallel with the company's pivot strategy in the Americas.
"However", the broker cautioned, "we remain conservative in the potential for FFV to become a margin accretive = channel for wine currently used in lower margin brands".
It expects "this acquisition to remain a lacklustre addition into FY22/23," retaining its neutral rating on the stock, however, lifted its price target by 20 cents to $11.80 in the update.
Alas, with the recent turmoil in global equity markets set to continue this week, time will tell which broker's forward estimates will come to fruition.
A bit more on the Treasury Wine share price
The Treasury Wine share price is down more than 14% this year to date and had collapsed more than 15% over the past month.
Although, in the past year of trading, shares have held gains and are up 5% in that time – more than can be said for many other ASX names at the moment.
At the time of writing, the company has a market capitalisation of $7.6 billion and trades on a price to earnings (P/E) ratio of approximately 30.5x.
