Treasury Wine Estates' earnings are set to more than double over the next three years, Bank of America-Merrill Lynch analyst David Errington has told clients.
"Over the coming three years, we expect Treasury's earnings to more than double, with earnings before interest and tax increasing from $334 million in 2016 financial year to $877 million in 2020 financial year," Errington wrote in a research note.
"And as we have previously suggested in recent notes, we think Treasury could deliver EBIT at or above $1 billion by 2021 financial year."
He notes Treasury Wine Estates has said that 2017 and 2018 financial years would be years of restricted volumes and higher cost of goods. "In addition, there has been heavy lifting in terms of repositioning brands, rationalising poor performing brands and optimising the supply chain."
Errington is bullish on the company's performance in Asia, while he also expects a strong increase in earnings from the United States in FY17 "from fix-it strategies...we expect to start seeing evidence that US 'growth' is evolving."
The shares are up 1.3 per cent at $12.78 and have gained 20 per cent in 2017. The stock trades on a P/E of 27 times estimated earnings over the 2018 financial year, on Thomson Reuters numbers.
TWE Price at posting:
$12.80 Sentiment: Buy Disclosure: Held
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