The A2 Milk Company Ltd (ASX: A2M) share price is pushing higher on Monday.
In early afternoon trade, the struggling infant formula company’s shares are up 1.5% to $5.47.
Why is the A2 Milk share price pushing higher?
Today’s gain by the A2 Milk share price may have been driven by a broker note out of Bell Potter this morning.
According to the note, the broker has retained its buy rating, albeit with a trimmed price target of $7.15.
Based on the current A2 Milk share price, this implies potential upside of 30% for investors over the next 12 months.
What did the broker say?
Bell Potter has been looking at monthly activity points and appears pleased with what it saw.
The broker highlights that Australia-China exports, which is a daigou proxy, were up 33% year on year in January. It was a similar story for Christchurch exports to China, which rose 20% year on year in January. Bell Potter notes that “historically there has been a high correlation between the value of exports to China ex-Christchurch (CHC) and A2M reported PRC revenues.”
One slight negative, though, is that the broker has raised its costs of goods sold assumptions in FY 2023 to reflect higher ingredient costs and the likelihood that there will be no price increases to offset this. This results in a 4% downgrade to its earnings for FY 2023 and FY 2024, which led to the 7.1% price target reduction.
Nevertheless, the broker doesn’t believe this will stop the company doubling its earnings per share by FY 2026. Hence why it remains very positive on the A2 Milk share price.
It commented: “There is no change to our Buy rating. We see the scope for EPS to double by FY26e, if A2M can execute on the China offline expansion strategy, while regaining 50% of the lost sales (from FY20-21) in English label IMF. Exiting the loss making US assets or navigating a turnaround at the MVM asset would likely accelerate this turnaround. We do not see the current share price as reflecting this potential.”
The post Broker tips A2 Milk (ASX:A2M) share price to rise 30% from here appeared first on The Motley Fool Australia.
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More reading
- 5 things to watch on the ASX 200 on Monday
- The A2 Milk (ASX:A2M) share price has spilled another 12% in 3 weeks. Is now the time to pounce?
- Why this broker sees 40% upside for the A2 Milk (ASX:A2M) share price
- Hot or cold? Here’s how the A2 Milk (ASX:A2M) share price performed in February
- A2 Milk (ASX:A2M) share price slips amid ‘long-term implications’ of flooding
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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