The Treasury Wine Estates Ltd (ASX: TWE) share price could be great value at the current level.
That's the view of analysts at Morgans, who have retained their positive view on the wine company's shares following its half year results.
What is Morgans saying about the Treasury Wine share price?
According to a recent note, the broker has retained its add rating but trimmed its price target on the company's shares slightly to $13.93.
Based on the current Treasury Wine share price of $11.66, this implies potential upside of almost 20% for investors over the next 12 months.
In addition, the broker has pencilled in a fully franked 29 cents per share dividend in FY 2022. If you include this ~2.5% yield, the total potential return on offer increases to 22%.
Why is the broker positive?
Morgans notes that Treasury Wine outperformed its expectations during the first half.
It commented: "Treasury Wine Estates reported an impressive 1H22 result given it had to cycle China earnings and the divested US commercial wine portfolio. COVID also continued to impact some of its higher margin channels. The result materially beat our forecast but was in line with consensus expectations."
Pleasingly, the broker expects this strong form to continue in the second half and in FY 2023.
In respect to the latter, the broker said: "In FY23, TWE's earnings will benefit from the recovery of its higher margin channels, its new divisional operating model, Penfolds reallocation strategy, a full year of the FFV acquisition and the associated synergies and lower COGS, with management expecting to deliver cost savings of at least A$75m pa."
In light of this and the attractive multiples that the Treasury Wine share price trades on compared to peers and historic averages, the broker sees the company as a great option for investors.
It concludes: "Following forecast changes, our SOTP valuation has fallen to $13.93. With over 18% [now 19.5%] upside to our new price target and the stock trading on an FY23 PE of only 21x (long-term average is 25x) and a material discount to other luxury brand owners, we remain buyers of this well managed company."
