Treasury Wine Estates' (ASX:TWE) underperformance is narrowing, however, excess channel inventory needs to be addressed and elevated cost of goods sold per case from volume deleverage will temper upside, Jefferies said in a Wednesday note.

Management previously indicated that net sales growth in fiscal 2027 will be affected by agreements with key distributors to reduce inventory levels, given category headwinds affecting sales and volume are expected to persist in the fiscal year.

The US wholesale shipment volumes are expected to be below depletion volumes.

The US wine market is growing modestly at higher price points, with Constellation Brands observing double-digit sales and depletion growth within its wine and spirits portfolio, but significant challenges remain in the sub-$20 price segment. Management indicated that Kim Crawford Sauvignon Blanc continues to gain share in the US.

The brokerage reaffirmed Treasury Wine Estates with a hold rating and a price target of AU$6.