All Eyes on Earnings | Treasury Wine Estates Jumps

14 July 2017

Global markets were generally higher overnight as the market traded in a relatively tight range. As we have discussed this week, US earnings season kicks off in earnest tonight and will be a focus for investors. Earnings will be as important as ever against the backdrop of rising interest rates, as without earnings growth it is hard to see valuation multiples staying at current highs (which would imply prices will likely fall).

Both the ASX and NZX were higher yesterday following global sentiment. One of the standout performers on the ASX was Treasury Wine Estates (TWE.AX) which jumped 4%.

Stock in Focus: Treasury Wine Estates (TWE.AX)
While there was no company specific news out yesterday, the release of an investment bank analyst report reiterating their overweight rating and $14.00 price target on the wine company saw TWE shares rally.

TWE has been one of our best performing stocks. Recent strategy changes by TWE to focus on premium wine brands has increased profit margins significantly, as the company has realised costs and higher sales prices.

At the same time, one of ’s key investment thematics is that a “dining boom” driven by a growing middle class in Asia will see multi-year demand growth for higher quality food. TWE offers investors an attractive play on the gentrification of the Asian pallet – in particular given the growing taste for red wine. Growth remains strong in this sector (particularly in China) and we expect the momentum to continue over the longer term.

We are currently BUY rated on TWE as a medium term exposure.

Members should look out for an updated report on TWE to be released in next week’s weekly report.  

 

Australia & New Zealand Market Movers

The Australian share market was higher on Thursday (ASX 200 index +1.11%) with the ASX 200 market index breaking through the 5700 level. Westpac led the big banks higher, while investors favoured healthcare and consumer staples. Telstra was lower as many in the market are doubting whether the Telco can maintain its dividend.
 

The New Zealand market rebounded yesterday (NZX 50 index +0.41%) with global trends, with NZX and Ryman Healthcare continuing to rise. Tegel Group shares were also supported as the latest monthly food price figures showed poultry prices recovered once again. In stock news, Pushpay shares jumped following the close of a $25m bookbuild to raise capital. The company yesterday also raised its annualised committed monthly revenue (ACMR) target to US$100m, announced plans to list in the US within the next 36 months, and gave strong guidance of US$70min revenue for the 2018 financial year.

3 Things Markets Will be Watching this Week
 
1.                 How the US Technology sector trades following recent volatility.
2.                 Fed Chair Janet Yellen will give her testimony to the House of Representatives late in the week
3.                 US Earnings season kicks off on Friday.

Have a Great Day,

Global markets were generally higher overnight as the market traded in a relatively tight range. As we have discussed this week, US earnings season kicks off in earnest tonight and will be a focus for investors. Earnings will be as important as ever again

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