The Australian share market offers exposure to some high quality, genuinely strong growth stories. Think Aristocrat Leisure ((ALL)), a2 Milk ((A2M)), Corporate Travel ((CTD)) and Altium ((ALU)), to name a few. One of the more contentious names is Treasury Wine Estates ((TWE)). Having first disappointed investors in its ex-Foster's existence, the stock has nearly tripled since 2015 and yet another strong performance in August has ignited the next leg upwards for the shares.
The stock has never traded without a certain level of controversy and today certainly is no different. Stock Analysis on the FNArena website shows out of the seven stockbrokers covering the company, only Morgan Stanley and Ord Minnett have a positive rating. In the latter's case it's Accumulate, the number two level, instead of the highest rating which is Buy.
Only Morgan Stanley has a price target above today's share price. This smacks of a comparison with Cochlear ((COH)), yet another prime growth success whose share price is constantly above stockbroker valuations; thus nobody ever likes it, but shareholders cannot but keep smiling as the share price continues to rally higher.
Cochlear shares appreciated 2.5x since early 2014. Admittedly, they had a much tougher time during the three years prior.
One of the unwavering supporters of Treasury Wine,CLSA, thinks investors can still jump on board and enjoy further strong gains. The secret, so to speak, according to CLSA lies within the margin. The analysts firmly believe, with conviction, that management still has multiple levers to pull to push the operational margin to a level closer to that of the competition.
This, says CLSA, is not well understood by the market. Hence general scepticism and a sense of: surely this share price must come back down to earth shortly? Not so, predicts CLSA who remains confident enough to declare the stock a Conviction Buy with a price target of $17.
On the other side,Citi's latest update on the company represents the opposing side of the argument with Citi analysts stating the company is being treated like a luxury stock but 75% of all products sold are commercial which is enduring price and margin pressures. Citi analysts point out price per case has remained stagnant for the past two years. The analysts cannot see how the current valuation stacks up. They certainly do not share CLSA's conviction. Hence why Citi's rating remains Sell with a twelve month price target no higher than $10.90.
TWE Price at posting:
$14.25 Sentiment: Buy Disclosure: Held
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