Merrill Lynch analyst David Errington has upgraded his assessment of Foster's Group to "buy" for the first time in four years.

Errington, a longstanding bear on Foster's, said the recent installation of new management and the cost savings from the structural separation of the wine and beer businesses should boost earnings.

There are also signs that the overall wine sector is emerging from an era of oversupply as plantings begin to fall, he said.

"The company has a very strong balance sheet, its cash generation is strong, and importantly, its wine business is profitable, cash generative and requires zero additional capital for improvement," Errington said in a briefing note.

Merrill Lynch has lifted its forecast for Foster's net profits by 3% to A$756m for the 2008-09 financial year.