Treasury Wine Estates (TWE) – Nice drop

Treasury Wine Estates is a wine producer and marketer operating in Australia, the US, the UK, China and other countries. Its brand portfolio includes luxury, premium and commercial wine brands, with the most prominent being Penfolds, Wolf Blass, 19 Crimes, Lindeman’s, Squealing Pig, Pepperjack, and Wynns. The company was spun out of Foster’s in 2011 and is headquartered in Melbourne.

Treasury Wine Estates (TWE) downgraded FY25 earnings guidance, citing reduced expectations for sales of its lower-priced wines. Those lower-priced brands also lagged in the first half of FY25, but a strong performance from its luxury portfolio, particularly its flagship Penfolds brand, allowed the vintner to report group earnings in line with market expectations.

‍

Ord Minnett notes, however, that weakness at the cheaper price points is an issue affecting all makers of alcoholic beverages globally as consumers become more health conscious, a trend that was only accelerated by COVID. Cheaper wine is usually the first of life’s pleasures to suffer in peoples’ quest for ‘wellness’, but in Treasury’s case, those wines only account for around 6% of FY25 group earnings on our analysis.

‍

Treasury offers an appealing investment case, with the stock trading around its lowest forward price-to-earnings (P/E) ratio since the wine business was floated as a separate company by Foster’s more than a decade ago. This inexpensive P/E multiple and the potential upside to our target price leads us to raise our recommendation to Buy from Hold and our target price to $12.00from 11.50.

‍