Treasury Wine Estates (TWE) – Sour note

Treasury Wine Estates is a vintner that supplies its products globally but principally to Australia, the US, the UK and China. Its wine portfolio includes luxury, premium and commercial wine brands, such as Penfolds, DAOU Vineyards, Wolf Blass, 19 Crimes, St Hubert's, Lindeman’s, Squealing Pig, Frank Family Vineyards, Pepperjack, Wynns, Matua, Seppelt, Beringer, Etude, Sterling Vineyards, Beaulieu Vineyard, Stags’ Leap, Beringer Bros, and Castello di Gabbiano. The company was founded in 1843 and is headquartered in Melbourne, Australia.

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A trading update from Treasury Wine Estates highlighted soft trading conditions in the US market, not just in its lower price-point products but also in its luxury brands, which includes the Penfolds and DAOU names, as economic uncertainty and tepid sentiment weighed on consumers. Revenue benefits and cost savings from the DAOU acquisition had been expected to generate earnings growth from the luxury division but, in Ord Minnett’s view, FY26 earnings from the Americas are now likely to be lower than FY25, especially since company guidance for growth was made prior to the exit of its main US distributor, Republic National Distributing Co (RNDC) from the key market of California.

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Disruption from RNDC’s exit from California is bound to have an impact on FY26, but the distributor’s loss of the major Jack Daniels contract raises questions over its continued presence in the other 12 US states where it acts for the Australian company. Treasury Wine screens as in expensive but given the earnings outlook, and the risk of incoming CEO Sam Fischer resetting guidance and expectations when he takes the top chair from Tim Ford in October, we are unable to be more constructive on the stock. We thus maintain our Hold recommendation and target price of $9.50.