Treasury Wine Estates Ltd (ASX: TWE) shares are experiencing a horrible year. Treasury Wine shares have been under constant pressure as investors digest softer sales and a procession of downgrades.
The global wine share is trading at $5.65 apiece at the time of writing. That sees Treasury Wine shares down 49.9% over 12 months and at levels that remain at 10-year lows.
Operational and macro headwinds
The fall is painful for a prestigious company that is known for premium wine labels such as Penfolds, 19 Crimes and Lindeman's, which are sold in more than 70 countries around the world.
The slide of Treasury Wine shares reflects a mix of operational and macro headwinds. The sale of premium wines has cooled, and the cost of freight has increased.
The company's board has also flagged distribution challenges in key markets, such as the US. Another strategically important market, China, has recovered more slowly than expected despite the easing of trade hurdles in 2024. Trade and geopolitical shifts, particularly in the US, add to Treasury Wine's problems.
Downgrades and a paused buyback program
Those setbacks have led to earnings downgrades, the withdrawal of formal earnings guidance from the company and a pause to the company's $200 million buyback program.
These moves have shaken investor confidence, and as a result, the share price has suffered significantly. The 40 cents per share in partly franked dividends that Treasury Wine paid over the full year will only compensate its shareholders modestly for their share price losses. At Monday's closing price, Treasury Wine shares trade on a dividend yield of 7%.
Trimmed price targets
Analysts have responded with varying degrees of caution, and recent broker notes show some downgrades. However, most analysts still see Treasury Wine as positive, with a 'hold' or 'buy' recommendation. Some brokers have trimmed their price targets, though, and they now span a wide range, from $5.50 at the low end to above $10 at the top.
Ord Minnett is one broker that recently slashed its valuation for the Treasury Wine shares. Analysts of the broker lowered the 12-month price target for the wine stock from $8.00 to $6.50, following a review of its model as the new CEO takes over the reins at Treasury Wine. This suggests a 15% upside at the current share price.
The broker explains:
Our changes are driven by the following factors: (i) excessive inventory in its Americas business, which will need to be cleared – we forecast revenue declines of $150 million at a margin of 55% as stock is depleted from its sales channels; (ii) weak demand for its Penfold products in China during the mid-autumn festival season; and (iii) removal of earn-out payments on its acquisition of Daou Vineyards in 2023.
