The Treasury Wine Estates Ltd (ASX: TWE) share price has been in fine form on Tuesday.
In afternoon trade the wine company’s shares are up over 5% to $11.10.
This latest gain means that Treasury Wine’s shares are now up over 13% since this time in May.
Is it too late to buy Treasury Wine shares?
While I see value in its shares for investors that are prepared to make a long term investment, I’m not convinced its shares will go much higher in the short term.
The latter is a view I share with analysts Goldman Sachs. This morning the broker reiterated its neutral rating and $10.30 price target on the wine giant’s shares.
Goldman has been looking at industry data and, although home consumption trends remain strong, it doesn’t see any real reason to get excited.
Based on Nielsen research, the broker commented: “In continuation of the strong double digit growth seen over the past 2 months, wine sales growth was strong at +31.6% for the 4 weeks ended 16th May with underlying volume growth at 27.4%. Treasury wine sales captured also saw strong growth, but again underperformed vs. the market, growing at +16.4% on a volume basis with +3.6% increase in average selling price.”
What about in China?
The broker notes that the weakness in Chinese wine import data continued into April 2020.
Its analysts explained: “Wine import into China in April was down -48.5% with underlying volumes down -47.8%. Import of wine in containers of less than 2L was down -51.5% from Australia with underlying volumes down -45.1%, marginally below the declines seen in March. On a YTD basis, Australian bottled wine imports were down -19.1% on a value basis and -22.9% on a volume basis.”
And while ecommerce platform sales have been strong and offset some of this decline, Goldman notes that relative pricing of its brands in China remain under pressure.
“Of the 12 products surveyed regularly, average prices on the Chinese e-commerce websites remained unchanged MoM for 6 and reduced for 4 in the month of May. On a yoy basis, average price decline for these products were -7.5%,” Goldman added.
What does this mean?
Essentially, the sum of the above will be a level of growth over the coming years that fails to justify its shares trading at a greater premium to the 22x estimated full year earnings they trade at today.
Though, the broker notes that there is upside risk from a recovery of trading in its US operations and earnings enhancing acquisitions. But until that happens, it will be sitting on a neutral rating.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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