'No. 1 in the US': Morgans says buy this ASX 50 share now

Here's what a leading broker is saying about this ASX 50 share this week.

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The ASX 50 index is home to fifty of the largest and arguably highest-quality companies on the Australian share market.

While not all members of the index are necessarily buys right now, there is one that is getting a big thumbs up from analysts at Morgans.

That company is wine giant Treasury Wine Estates Ltd (ASX: TWE).

Why is Treasury Wine an ASX 50 share to buy?

According to the note, the broker was pleased with the company's plan to acquire the Paso Robles luxury wine business, DAOU Vineyards (DAOU) for US$900 million (A$1.4 billion). It commented:

The acquisition is in line with TWE's premiumisation and growth strategy and will strengthen a key gap in Treasury Americas (TA) portfolio. Importantly, DAOU has generated solid earnings growth and is a high margin business. TWE has consequently upgraded its margins targets. The acquisition is EPS accretive from FY25 and +US$20m of cost synergies are expected by FY26.

In response to the acquisition, which means it is "now no. 1 in the US luxury wine market," Morgans has upgraded its earnings estimates and valuation. After doing so, the broker believes that its shares are in bargain territory, trading at significant discounts to five-year averages. It said:

We have upgraded our forecasts. On an FY25F PE of 17.5x, TWE is trading at a material discount to its 5-year average of ~25x and we maintain an Add rating. The key near term catalyst is China removing the tariffs on Australian wine imports.

Big upside for its shares

Morgans has an add rating and a new price target of $14.15 on the ASX 50 share. This implies a potential upside of 29% for investors over the next 12 months.

And with the broker forecasting a 3.3% dividend yield in FY 2024, this brings the total potential return to over 32%.

Motley Fool contributor James Mickleboro has positions in Treasury Wine Estates. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Treasury Wine Estates. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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