Guess which ASX 100 stock has 'high quality' earnings and could rise 22%

Goldman Sachs thinks big returns could be on the cards for buyers of this stock.

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Treasury Wine Estates Ltd (ASX: TWE) shares could be great value at current levels.

That's the view of analysts at Goldman Sachs, which have just increased their valuation of the ASX 100 stock.

This follows the release of the wine giant's Penfolds update on Thursday.

What is the broker saying about this ASX 100 stock?

Goldman was pleased with the company's update. And while it acknowledges that its Penfolds guidance for next year was a touch short of expectations, it thinks investors should look beyond this and focus on its strong outlook for FY 2026 and FY 2027. Its analysts commented:

TWE announced an update on its Penfolds outlook and strategy this morning together with Sales/EBITS/EBITS margin guidance for FY24-27. Whilst stock reaction was muted given FY25 Penfolds EBITS guide ~3.5% below Visible Alpha consensus, we believe that the ~15% CAGR in FY26/27 EBITS excluding any price increase is strong and demonstrates management confidence in execution despite the highly volatile consumer environment.

The broker also highlights the high quality of the ASX 100 stock's earnings. It adds:

We believe that the building blocks of the EBITS growth to FY27 is balanced and of high quality, including FY25 ~+6% weighted average price in Bins & Icons (GSe ~3% across total Penfolds portfolio), FY26/27e ~15% volume and mix; with longer-term EBITS margin target at 45%.

Big returns expected

According to the note, the broker has reiterated its buy rating and lifted its price target on its shares to $15.20 (from $13.40).

Based on the current Treasury Wine share price of $12.43, this implies potential upside of 22% for investors over the next 12 months.

In addition, Goldman is forecasting dividend yields of 2.8% in FY 2024 and then 3.5% in FY 2025 from the ASX 100 stock. This stretches the total 12-month potential return to approximately 25%.

Commenting on its earnings forecasts and valuation, the broker commented:

Accordingly, we revise our group FY25/26 NSR and EBITS +1.0%/+2.4% and +0.9%/+6.7% respectively, and now factor 11%/15% Penfolds EBITS growth in FY25/26 vs mgmt guidance of low double-digit and 15%. We also roll-forward our SOTP/DCF valuation from FY25 to FY26 and introduce FY27 estimates. We revise our 12m forward TP to A$15.2/sh (vs previous A$13.4/sh). TWE is trading on a FY25 forward P/E of 20x vs FY24-27 EPS growth of 14%, implying 1.4 PEG (attractive vs the rest of our global growth Consumer coverage). Reiterate Buy.

Overall, this could make Treasury Wine shares worth considering if you're looking for new portfolio additions.

Motley Fool contributor James Mickleboro has positions in Treasury Wine Estates. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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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