BofA cuts Duckhirn Portfolio stock to $8 due to preimum wine segment underperformance


On Tuesday, BofA Securities revised its stance on The Duckhorn Portfolio, Inc. (NYSE: NAPA), downgrading the stock from Neutral to Underperform and reducing the price target to $8.00, a significant decrease from the previous target of $11.00. This adjustment by the firm reflects a growing concern over the weakening performance of the premium wine segment.

The downgrade was prompted by a reassessment of Duckhorn’s sales projections for the years 2024-2026, which have been slightly lowered by 0.5%, 2.3%, and 3.9% respectively. Additionally, the target multiple for the company’s CY25 EV/EBITDA was adjusted to 7.5x, a notable drop from the prior estimate of approximately 12x.

Recent market trends indicate a continued slowdown in the premium wine sector, specifically for wines priced above $15 per bottle. This downturn became more pronounced in December, although there was a modest recovery in January which analysts believe was aided by favorable weather conditions and timing. The report also references Constellation Brands (NYSE: NYSE:STZ), which earlier in January signaled a deceleration at the higher end of the wine market.

The analysis by BofA Securities suggests that Duckhorn may encounter increasingly challenging comparisons in the second half of 2024, particularly within its Decoy and Duckhorn brands. The firm posits that until there is a noticeable uptick in sales, Duckhorn’s shares are expected to lag behind the market.

InvestingPro Insights

Following the BofA Securities downgrade of The Duckhorn Portfolio, Inc. (NYSE: NAPA), the market has shown a reflection of the concerns expressed by the firm. InvestingPro data reveals a Market Cap of approximately $980.63 million, indicating the size of the company in the current market. Moreover, the company’s P/E Ratio stands at 16.17, suggesting that investors are paying $16.17 for every dollar of earnings, which is relatively high given the near-term earnings growth. This aligns with the InvestingPro Tip that NAPA is trading at a high P/E ratio relative to near-term earnings growth.

Despite recent challenges in the premium wine sector, Duckhorn has demonstrated an ability to maintain a strong gross profit margin, with the last twelve months as of Q1 2024 showing a margin of 54.06%. This impressive margin is one of the InvestingPro Tips, highlighting the company’s efficiency in converting sales into profit. However, it’s important to note that analysts have recently revised their earnings downwards for the upcoming period, which could impact future profitability.

From a valuation standpoint, Duckhorn is currently trading near its 52-week low, with the price representing only 54.72% of the 52-week high. This could be seen as a potential entry point for investors, especially considering that the company’s liquid assets exceed short-term obligations, as noted in another InvestingPro Tip. For investors seeking more in-depth analysis, there are an additional 10 InvestingPro Tips available, which can be accessed through the InvestingPro platform with the use of coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.


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