Duckhorn Faces Margin Challenges Despite Distribution Growth, Analyst Cites Macro Sensitivity

BMO Capital analyst Andrew Strelzik initiated the coverage on The Duckhorn Portfolio, Inc. NAPA with a Market Perform rating and a $14 price target, which implies 10%-15% upside.

Although NAPA is favorably positioned for long-term growth, the analyst expects the shares to be limited in the medium term by consumer spending concerns, with risks of potential incremental margin headwinds.

The pullback in shares (~25% YTD) and multiple compressions indicate spending concerns are reflected already.

However, Strelzik expects NAPA to remain pressured until visibility improves, given the historical precedence of the wine category — premium wine in particular — macro sensitivity.

Recognizing top-tier margins vs. peers, the analyst adds that gross margins may face incremental near-term headwinds reflecting potential trade down from higher margin channels/ products and delayed supplier pass-through of higher costs given NAPA’s multi-year supplier contracts.

Overall, the analyst expects NAPA’s valuation to remain limited by macro uncertainty for now, though multiple expansion opportunities exist over time.

On the positive side, the analyst thinks NAPA’s high-single-digit long-term sales growth target is achievable over time, with confidence in distribution gains.

For FY23, the analyst expects EPS estimates of $0.64, with revenues of $402 million.

For FY24, the analyst estimates revenues of $432 million, with EPS of $0.70.

Price Action: NAPA shares are trading lower by 3.76% at $11.76 on the last check Tuesday.