Treasury Wine Estates is under Algo Engine sell conditions and we highlight the recent softness in US sales data as a concern.
Sales within Asia continue to offset the US related weakness, however, we expect the TWE share price to remain under pressure.
Based on FY20 & FY21 EPS growth remaining in the 10 – 15% range, we have TWE EBIT growing from $660mn in FY19 to $850mn in FY21. This supports a forward yield of 3%.
We’re not holding TWE in our portfolio at present and we prepared today’s post on TWE as a reminder of the opportunity that lies ahead when the stock switches to buy conditions. We expect to see this in the first quarter of the New Year.
Earnings continue to grow at 15 – 20%, although there is evidence that the growth rate is slowing. If we assume total revenue in FY20 of $3bn on EBIT of $765mn, 15% earnings per share growth, we can support a 3% dividend yield.
On the above basis, we consider TWE fair value, but see little in the way of a catalyst to drive the share price higher. We therefore, recommend selling a covered call option to enhance the income return.