TWE
Treasury Wine has had a bumpy time of it. There was the pandemic, with everyone shut inside. There was the beef with China, which resulted in wine exports going to zero. And there’s the broader, longer running phenomena of drinking less, for health reasons, and also more drinks on offer to choose from.
Despite that, Treasury has grown, earnings are back to slightly above where they were prepandemic, and China is expected to grow as a contributor as mgmt build back out that exposure.
They did however downgrade guidance for growth, in other words, FY26 will grow less quickly than FY25 (which, when TWE table their result in August, will also have shown good growth over FY24). Things aren’t going as well to plan as previously thought. Some of that might be blamable on trade and tariff wars, but then, companies often blame bad stuff on the macro (as opposed to overpaying for DAOU, for example).
So we can see the forward EPS estimates rolling over. How much further might they go? We don’t know. We didn’t think it large, but we do get the bearish arguments that I tabled at the top of the note.
But should the share price have undershot by this much? That seems like a lot. Penfolds is a good brand, and is the majority of the business (~80% of the business is in what you’d call “luxury”). It sells, and sells well. The main limit to how much they can sell has been availability.
There do seem to be some cracks, in the economic resilience of the world at large, and discretionary items are often cut back at such times. But TWE already trades on a forward PE of 13x, roughly 5 PE points below that of the broader market. New management will likely water down the medium term guide path for the stock, and that would mean consensus revisions. But the share price, at those levels, suggests the market didn’t back them in the first place.
EPS downgrades absolutely matter, and there’s few things I believe in more strongly than momentum (both price and earnings). Equally, if the future turns out to be less awful than what is seemingly priced in, the stock should rally.
Still. Something of a surprise.
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