Is Treasury Wine ripe for a turnaround?

The Treasury Wine Estates Ltd (ASX: TWE) share price has taken a hit over the past year.

Treasury Wine shareholders have seen the value of their holdings shrink by about 35% over the past 12 months.

In fact, the Treasury Wine share price has been tanking for the past couple of years.

At the start of 2023, Treasury Wine shares were trading at around $14.64.

Today, Treasury Wine shares are changing hands for about $8.20 each.

That represents a decline of around 45% in about a year and a half.

What happened?

Treasury Wine, one of the world's top five wine producers, has been hit on multiple fronts over the last few years.

Consumers have been turning away from wine and alcohol due to health and wellness concerns.

Cost of living pressures impacting spending habits, as well as supply chain issues hitting costs, and market turmoil resulting from Trump's tariffs, have added to the company's woes.

And duties imposed on Australian wine by Beijing in 2021 have not helped Treasury's sales in China.    

But, with a year passed since China lifted the tariffs, things are looking up for Treasury Wine shareholders.

Tariffs removal boosts Treasury Wine

Australian wine exports to China increased by 41% in value over the past year to $2.64 billion, according to Wine Australia.

Australia's government-funded peak wine research institute also noted a 6% increase in export volume to China to 647 million litres.

Peter Bailey, Manager, Market Insights, Wine Australia, said the total value of shipments to mainland China is now at a similar level to the years immediately before the tariffs.

The increase in average value is mainly due to the elevated level of premium wine shipments to mainland China.

Volume in the last 12 months is 23% smaller than the 5-year average between 2016 and 2020 and 44 per cent below the peak in 2018.

Additionally, the average value of packaged wine shipped to mainland China was $23.00 per litre, much higher than any other major export market.

Improvements in export conditions were reflected in Treasury Wine's investor update released today.

Treasury reaffirmed its FY 2025 EBITS guidance of approximately $770 million, representing a 17% increase on the prior corresponding period.

That increase is being driven by top-line growth for Treasury's Penfolds and DAOU segments.

Penfolds is expected to deliver low double-digit EBITS growth, in line with guidance, led by strong performance in Asia, particularly China.

Although things are looking up for Treasury's operations in Asia, in North America, it's a different story.

Tariff uncertainty and global market conditions continue to hamper Treasury Wine's lucrative North American operations.

And cost of living pressures continue to bite amid a general trend of consumers turning away from alcohol in favour of healthier lifestyle choices.

As such, while conditions have improved for Treasury Wine, significant challenges remain.

Still, analysts are seeing potential for Treasury Wine.

Broker Morgans has a buy rating on Treasury with a $11.06 12-month price target.

This implies a potential upside of 35% based on Treasury's current share price.