Is this luxury wine company losing its bouquet?

One of the few wine companies listed on the stock exchange, The Duckhorn wallet (NYSE: NAPA) is just seven months away from its IPO in March. It served up a good vintage of revenue and earnings with its fourth quarter and fiscal 2021 report in early October, earning a stock market boost from satisfied investors. However, the market recorded a strongly negative response to its announced sell-off of 12 million shares a week later, reducing the value by more than 6% in a matter of hours. This raises the question of how sustainable its current value is – with significant metrics likely supporting a bullish thesis despite the temporary negativity from investors.

Duckhorn’s latest quarterly results

When Duckhorn blew the cap on his fourth quarter results on Oct. 4, he was well ahead of analyst consensus expectations. The results generated positive surprises both above and below. Its revenue of $ 70.89 million beat Wall Street expectations by 17.8%, while its adjusted earnings per share of $ 0.08 exceeded the average forecast by 300%.

Quarterly and full year results also strongly outperformed the previous year performance. Fiscal 2021 fourth quarter revenue increased 35.7% year-over-year, while adjusted net income of $ 9.2 million was 24.3% higher than the fourth quarter figure of fiscal year 2020. The entire fiscal year, which ended on July 31, saw sales increase by 24.4% and adjusted net income by 27.3%. CEO Alex Ryan noted that “the company’s brand equity, diverse omnichannel platform and very flexible supply chain position us very well to capitalize on the increased interest and demand for high quality wine. ”And have led to very positive results.

Image source: The Duckhorn Wallet.

The winemaker is targeting between $ 353 and $ 360 million in sales for fiscal 2022 and adjusted EPS of $ 0.54 to $ 0.57. Revenue is above $ 336.6 million in fiscal 2021, while EPS is slightly below $ 0.58 last year. However, the press release notes that EPS is affected by the increase in operating costs of a public company. If these costs had been present throughout fiscal 2021, his adjusted EPS would have been $ 0.52 instead.

Therefore, the forecast for 2022 is equivalent to 3.9% to 9.6% profit gains over 2021 if adjusted for public company spending. This means that the forecast calls for effective growth of up to around 7% in revenue and almost 10% in profit year over year, showing that the Duckhorn portfolio expects to maintain positive momentum through July 31. 2022.

Stock sale announcement and stock market crash

On October 12, when Duckhorn announced an upcoming stock sale through a prospectus with the Securities and Exchange Commission, his shares traded slightly higher during normal trading hours. After rising 1.49%, however, its shares plunged into after-hours trading. As of 7 p.m. EDT, its stock price had fallen 6.34%. The company has traded consistently above its offer price of $ 15 since its IPO, sometimes as high as $ 25, but almost fell below $ 20 on news of the sale. The first exchanges the next day confirmed the loss in value.

The 12 million shares involved in the sale are sold by existing shareholders rather than by Duckhorn Portfolio itself. 1.8 million additional shares could be involved if the underwriters exercise their option to sell additional shares. The company will not receive any proceeds from the sale, but will bear the costs. Investors are responding because the sale of shares, following the expiration of the September 14 block date following Duckhorn’s IPO, will increase the free float, or pool of shares available for trading.

On the plus side, the main sell will not actually dilute the company’s stock overall, despite the company’s increased free float. Plus, since Duckhorn isn’t the seller, the offer doesn’t sound the alarm bells about a sudden need for extra cash for an unforeseen expense or recklessly large acquisition. While Ryan commented on how “executing accretive M&A opportunities adds an additional element of growth for us” during the fourth quarter earnings conference call, he also added that the approach of the company in mergers and acquisitions is “disciplined”. The company is unlikely to dilute its shares just to complete an acquisition.

The offer could cause the shares to trade closer to $ 20 than to $ 25 for some time. However, this does not fundamentally change Duckhorn’s positive measures or his growth trend. Investors should also consider that the winemaker is positioned in one of the growth areas of the liquor market with an emphasis on bottling and selling premium wines. Its brands, including many duck-themed labels such as Goldeneye, Migration, Greenwing, Canvasback, Decoy, and Paraduxx, are sold in 50 states and over 50 countries, and range from $ 20 to $ 200 a bottle, depending on the. company.

Targeting the premium spirits market has been a recent successful strategy for the beer and wine company Constellation brands (NYSE: STZ). Although its primary focus is on beers and hard salts, Constellation has turned to high-end brand sales as sales of low-cost beer, wine and spirits continue to plummet for decades. years. In fact, Constellation’s presentation at the September 8 conference cited data supporting a premium alcohol strategy.

The Duckhorn portfolio fits naturally into this growing sector of the alcohol market, supporting the idea that it will continue to grow, even if the supply of common shares lowers the share price for some time. time. This rare winemaker among beverage stocks still looks positive and deserves to be viewed as an investment by investors interested in the sector, with its growth and value likely to soar in the medium and long term.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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Jean H. Vannatta

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