Stock Wars: The Duckhorn Portfolio Vs. Willamette Valley Vineyards

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector, with the goal of determining which company is the better investment.

This week, the duel is between two wine industry companies: The Duckhorn Portfolio Inc. NAPA and Willamette Valley Vineyards, Inc. WVVI.

The Case For The Duckhorn Portfolio: Founded in 1976 by Dan and Margaret Duckhorn when they opened their merlot-focused Duckhorn Vineyards in California’s Napa Valley, this company encompasses 10 wineries, eight winemaking facilities, seven tasting rooms and more than 800 acres of vineyards spanning 22 estate properties.

The company’s luxury wine brands include Duckhorn Vineyards, Decoy, Kosta Browne, Goldeneye, Paraduxx, Calera, Migration, Canvasback, Greenwing and Postmark, with wines retailing from $20 to $200 and are sold across the U.S. and in 50 countries.

The private equity firm TSG Consumer Partners LLC acquired Duckhorn from another private equity firm, GI Partners, in 2016. The company held its initial public offering on March 17, 2021, with 20 million shares of its common stock to the public with 13.3 million shares being offered by Duckhorn and the remainder offered by its existing stockholder at $15 per share.

According to a Bloomberg report, the shares rose as much as 29% during the first day of trading and closed at $17.18, giving the company a market value of $1.98 billion.

In its most recent earnings report, the fiscal year fourth-quarter data published on Oct. 4, the company reported net sales of $70.9 million, up from $52.2 million in the prior year, and a gross profit of $34.4 million, up from $25.9 million one year before.

Duckhorn’s net income was $7.4 million, or 6 cents per diluted share, versus a net loss of $2.7 million, or -3 cents per diluted share, in the prior-year period, while its adjusted net income was $9.2 million, or 8 cents per diluted share, versus $7.4 million, or 7 cents per diluted share, one year earlier.

“Our brand equity, diversified omnichannel platform and highly flexible supply chain position us very well to capitalize on the heightened interest and demand for high-quality wine, all of which contributed to another period of robust sales and volume growth,” said chairman and CEO Alex Ryan. “Importantly, we continue to achieve profitable results in an environmentally sustainable manner.”

Duckhorn opened for trading on Wednesday at $21.49; since going public roughly seven months ago, its shares have traded in the range of $16.16 to $25.25.

Related Link: The complete Stock Wars series

The Case For Willamette Valley Vineyards: Named after the Oregon region, this company was founded in 1983 by Jim Bernau and Don Voorhies and has become acclaimed over the years for its pinot noir, pinot gris and chardonnay.

In September 1988, the company made history when Bernau received approval from the U.S. Securities and Exchange Commission to conduct the first successful self-underwritten Regulation A public offering. By the time this initiative concluded in May 1989, Bernau achieved the nation’s first “crowdfunded” consumer-owned business with approximately 1,000 investing an average of $1,500 each.

In its most recent earnings report, the second-quarter data published on Aug. 12, the company reported sales revenue of $8.9 million, up from $5.5 million one year earlier, and a gross profit of $5.1 million, up from $3.5 million in the previous year.

The second-quarter net income was just over $1 million with earnings per common share at 14 cents, compared to $620,421 in net income and 7 cents worth of earnings per common share in the previous year.

“Our wine sales directly to wine enthusiasts and to our wholesalers' accounts has never been higher during this first six months of 2021,” said Bernau. “While labor shortages and supply chain disruptions have been challenging, we remain on course to open our new sparkling winery near Dundee and winery restaurants as planned. The construction of an additional 50,000 cases of fermentation capacity is on schedule and expected to be ready before what now appears to be one of Oregon's earliest harvests.”

Willamette Valley Vineyards opened for trading on Wednesday at $12.95, sandwiched between its 52-week range of $6 and $16.54.

The Verdict: Relatively few wine industry companies are publicly traded, which is not surprising when one considers the distinctive challenges involved in wine production, ranging from the impact of weather on grape crops to the aging process required before the finished products can be sold. This is not an item that can be manufactured in a rapid assembly-line process.

The U.S. wine industry recorded 27 consecutive annual gains through 2020 but is expected to see a 0.5% volume decrease this year, down to 335.4 million 9-liter cases, according to the 2021 edition of “The U.S. Wine Market: Shanken’s Impact Databank Review & Forecast.”

“While the U.S. has been the world’s largest wine-consuming market since 2013, volume growth has been modest at best in each of the past 10 years due to fierce competition from whiskies, hard seltzer, and other ready-to-drink brands,” the Shanken report said. “While the wine industry registered an above-average 2% volume increase last year owing to off-premise gains during the pandemic, wine continues to lose market share to spirits and flavored malt beverages.”

If The Duckhorn Portfolio and Willamette Valley Vineyards seem to be on the smallish side in terms of revenue, consider that the only U.S. brand with more than $1 billion in retail sales is Barefoot Cellars from Grape Links Inc.

In choosing which of these two stocks is the strongest, Willamette Valley Vineyards clearly has a track record of success and its Oregon wines are holding their own in a highly competitive market — only 1% of U.S. wine is sourced from Oregon.

But, The Duckhorn Portfolio came roaring out of the IPO tunnel like a freight train and is trading higher than its well-established rival. Even with seven months in trading,

The Duckhorn Portfolio is still at a ground-floor level for investors looking for long-term growth. For that reason, we raise our Stock Wars glass in cheers to The Duckhorn Portfolio as the better investment in this duel of shares.

Photo: Arek Socha from Pixabay.