A couple of ASX 200 shares have released updates this week to very different receptions.
One impressed the market and saw its shares launch higher, the other disappointed investors and led to its shares sinking deep into the red.
Goldman Sachs has been running the rule over the updates and while not overly impressed with one of them, still believes both ASX 200 shares are in the buy zone right now.
Let's take a look at what the broker is saying about them:
IDP Education Ltd (ASX: IEL)
This language testing and student placement company is the one that disappointed the market. The ASX 200 share sank 7.5% after warning about recent changes to regulatory settings.
It advised that a more restrictive policy environment in its key destination countries is reducing the size of the international student market. This has negatively impacted testing and student placement volumes during the second half. As a result, IDP Education is guiding to flat earnings in FY 2024.
Commenting on the update, Goldman said:
IEL's trading update was soft, but should help investors better frame the earnings base for FY25 as the impacts of regulatory tightening measures become clearer.
The broker has now reduced its earnings forecasts for the coming years and expects its earnings to bottom in FY 2025. After which, Goldman believes its growth will resume.
Despite this weak near term outlook, the broker feels that its shares are undervalued. It said:
Overall we now expect FY25 EBIT of A$222mn, -4% vs FY24E, and cut FY24/25/26E EBIT -9%/-17%/-17% with IEL trading on 23x FY26E P/E, even assuming a modest FY26E recovery, though we acknowledge uncertainty remains on the CY25 CA cap and AU university placement caps.
Goldman now has a buy rating and $21.75 price target on its shares. This implies potential upside of approximately 50% for investors.
Treasury Wine Estates Ltd (ASX: TWE)
This wine giant's shares charged higher this week after it reaffirmed its guidance for FY 2024 and spoke positively about its opportunity in North America.
In respect to the former, management continues to expect mid-high single digit EBITS growth for the year. It also advised that work to assess the future operating model for the company's global portfolio of Premium brands is continuing with an update expected in August.
Goldman was impressed with this update and believes its growth is about to accelerate. It said:
In FY22-24e, we expect the company to deliver sales/EBITS/EPS CAGR of 4.0%/12.0%/8.7%, while from FY24-26e, we expect this to accelerate to ~7%/13%/12% respectively. All of this is against a moderately declining growth environment in US/China wine.
In light of the above, the broker has reiterated its buy rating on the ASX 200 share with an improved price target of $13.40. This suggests a potential return of 11% before dividends and almost 15% including them. Goldman concludes:
Our valuation multiple and methodology are unchanged. Our 12m TP of A$13.40/sh (from A$13.00/sh) implies 15% TSR and we reiterate Buy given positive delivery of the strategy reset as well as attractive double-digit EPS growth at an attractive valuation. The stock is trading at 1yr fwd P/E of 20x. The key catalyst for the stock will now be its June 20 Business Update focused on China.
