TREASURY Wine Estates may have outperformed the benchmark S&P/ASX200 index by 18.4 per cent in the past six months but JPMorgan, Citi, Credit Suisse and Commonwealth Bank of Australia all reckon it?s better to be underweight.
Spun out in May from the now de-listed Foster’s Group, the company just became Australia’s largest listed alcohol company with a market capitalisation of $2.5 billion.
CBA analyst Jordan Rogers downgraded the stock to “sell” last Thursday, with a price target of $3.50 citing its outperformance and domestic grape oversupply. The broker believes the company is unlikely to receive a bid higher than the $2.3bn to $2.7bn indicative non-binding bid from Cerberus Capital Management in September 2010 and thinks the risk of corporate activity is not reason enough to hold.
“The key risk to our recommendation is the company’s corporate appeal, particularly for the Australian assets. However, with Treasury Wines trading on 19.1 times forecast fiscal 2012 EPS (48 per cent premium to market), we do not see this as a sufficient reason to own the stock,” Mr Rogers said in a note. Free trial
Also in a note, JPMorgan analyst Stuart Jackson -- who has a price target of $3.10 -- warned unless the company’s sales revenues begin to increase year-on-year, underlying profitability could decline as the impact of lower average unit pricing offsets any improvements to volume.
Credit Suisse analyst Larry Gandler wants Treasury Wines to use its strong balance sheet to acquire and divest boutique wine brands like Rosemount to boost growth ahead of what’s expected to be a challenging fiscal 2013.
Mr Gandler has a target price of $2.65, 47 per cent below the stock’s opening price today of $3.90.
TWE Price at posting:
$3.71 Sentiment: None Disclosure: Not Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)