Analyst Merrill Lynch has said it remains sceptical about the short-term future of beer and wine giant Foster's Group.

Merrill Lynch said today (2 February) that it was "intrigued" by the industry consensus that the company's earnings per share for fiscal 2006 would reach A$0.31 (US$0.23) a share - and maintained its 'sell' recommendation on the stock.

Merrill Lynch said Foster's stock had under-performed by around 20% since it had placed a sell recommendation on the company's stock.
 
"We certainly believe that it is a very fair question to ask whether a lot of the bad news may now be fully factored into the Foster's share price," the analyst added.

Merrill said conditions in the Australian wine industry were set to "get worse before they get better".
 
"The 2006 grape crush looks set to be bigger than 2005, and probably 2007 bigger again. Given there is still wine from 2005 looking for a home, and given increase retailer consolidation, pricing in Australia is likely to get worse."

This economic backdrop would likely make it "extremely difficult" to integrate the Southcorp business, Merrill said.

"We believe there is likely to be downside risk to earnings over the coming 12-month period - certainly as the tough industry conditions begin to bite," the analyst added.