The Treasury Wine Estates Ltd (ASX: TWE) share price has come under pressure in 2022 amid the market volatility.
Since the start of the year, the wine giant's shares have fallen 11% to $11.15.
This compares to a 6.2% decline by the S&P/ASX 200 Index (ASX: XJO) over the same period.
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Is the weakness in the Treasury Wine share price a buying opportunity?
According to a recent note out of Citi, its analysts see a lot of value in the Treasury Wine share price at the current level.
In response to an update out of an industry peer in the United States, the broker has retained its buy rating and $13.78 price target on the company's shares.
Based on the current Treasury Wine share price, this implies potential upside of over 23% for investors over the next 12 months.
What did the broker say?
Citi highlights that Pernod Ricard has just released its third-quarter update which revealed that its US sales momentum is accelerating.
While acknowledging that Pernod Ricard's strong sales momentum was from non-wine brands, it is interpreting the update as a sign of strong demand for alcohol as a whole in the key market.
Citi believes that this bodes well for the Treasury Americas business, which contributes almost a third of its overall earnings.
One slight negative, though, was that Pernod Ricard spoke about challenges in the China market due to lockdowns. Citi has concerns that this could be a risk for any Treasury Wine products arriving into the country through the grey channel.
The broker commented:
Pernod Ricard's 3Q FY22 result (Mar 22 ending) revealed an acceleration in US sales momentum driven by strong demand in key brands. While the brands highlighted by Pernod were mostly non-wine brands, we see strong alcohol demand in the US post reopening, particularly in the on-premise channel, as a positive for Treasury Americas (~30% of FY22 EBITS). However, challenges in China as highlighted by Pernod due to lockdowns could be a risk for Treasury's wine volumes which may be landing in China through the grey channel.
