The market may be trading at a record high, but the same cannot be said for the ASX 200 stock in this article.
Although its shares have risen off their lows for the year, they are still trading materially below both their 52-week and all-time highs.
While disappointing for shareholders, one leading broker appears to see this as a buying opportunity for others.
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Which ASX 200 stock could be undervalued?
The stock in question is Treasury Wine Estates Ltd (ASX: TWE). It describes itself as an end-to-end global wine business, focusing on producing premium still and sparkling wines for 70+ markets.
Among its portfolio are wine brands such as Penfolds, 19 Crimes, Matua, Daou Vineyards, Lindeman's, Blossom Hill, and Wolf Blass.
Goldman Sachs thinks its shares are undervalued at current levels. It highlights that they are trading on lower than average multiples despite the company having a very positive earnings growth outlook.
The broker recently said:
Our Buy rating on TWE is premised on accelerating double-digit EPS growth in FY24-27e driven by 1) continued global expansion of Penfolds, especially post the removal of China import tariffs on Australian wine; our recent channel checks suggest positive reception to the returning Australian sourced Penfolds and we expect a ~63pct pre-tariff recovery by 2027
And 2) its rank as the #1 luxury wine company in the US (most sales in luxury wine) with the recent acquisitions of Frank Family Vineyards (FFV) and DAOU which have been growth and margin accretive, combined with a stable portfolio of Premium Brands. TWE is trading modestly below the 5-year historical P/E average.
Big returns
The note reveals that Goldman has a buy rating and $15.20 price target on the ASX 200 stock.
Based on its current share price of $11.44, this implies potential upside of almost 33% for investors over the next 12 months.
To put that into context, a $5,000 investment in the wine giant's shares would turn into approximately $6,650 if Goldman Sachs is on the money with its recommendation.
But the returns won't stop there. This ASX 200 share is one of the more generous growth shares out there on the Australian share market.
For example, Goldman Sachs expects the company to reward its shareholders with a partially franked 36 cents per share dividend in FY 2025.
This equates to an attractive 3.1% dividend yield at current prices, which stretches the total potential 12-month return to approximately 36%.
