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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The valuations of growth stocks have been tested lately in the wake of unprecedented inflation levels, hiked interest rates, and the economic impacts of Russia’s invasion of Ukraine. The Nasdaq Composite has descended 28% year to date, and the Cboe Volatility Index — commonly referred to as Wall Street’s fear gauge — has soared nearly 80% in the same time frame, highlighting investors’ uneasiness at the present moment. 

Tesla (NASDAQ: TSLA), one of the most polarizing stocks on Wall Street, has joined the sell-off by shedding 41% of its value since the start of the year. The EV leader’s market capitalization eclipsed $1 trillion in late 2021, but the stock has since backpedaled, settling at a $738 billion market cap today. Will the Elon Musk-led company return to the $1 trillion zone, and if so, when? While macro headwinds and Musk’s dramatic potential takeover of Twitter surely haven’t helped Tesla, the EV giant’s business continues to make headway in a grand fashion.

On that note, let’s discuss two reasons to consider buying Tesla stock today and one justification for holding back.

Buy: Business is booming

In a quarter rife with macroeconomic challenges and COVID-related shutdowns in its Shanghai factory, Tesla delivered big for its shareholders. The company raked in total sales of $18.8 billion, growing 81% year over year and beating Wall Street estimates by 5%.

Likewise, earnings per share (EPS) finished at $3.22, climbing 246% and smashing consensus forecasts by a whopping 42%. The EV commander produced 305,407 vehicles and completed 310,048 deliveries, adding to the already-strong quarter with respective increases of 69% and 68%. 

Per management’s guidance, investors can expect the company to achieve 50% average annual growth in vehicle deliveries over a multi-year time horizon. For the full fiscal year 2022, Wall Street analysts are projecting the company’s top line to surge 61% year over year to $86.3 billion and EPS to mount 81%, reaching $12.31.

Given that Tesla’s factories have been operating below capacity for several quarters and will continue to do so throughout 2022, the company’s growth amid such setbacks is nothing short of remarkable. Its robust balance sheet reveals a 660% year-over-year increase in free cash flow generation, rising to $2.2 billion in the first quarter of 2022 from $293 million in the year-ago period. All told, the EV juggernaut is in an advantageous position to expand its operations in the years to follow. 

Buy: Massive industry potential

Tesla brings a lot of mainstream attention to the EV market, but don’t be fooled: the industry is still in its early innings. As of today, there are more than 10 million electric vehicles on the road, but that represents just 1% of global car stock. By 2030, it’s projected that there will be 300 million electric cars on the road, a 2,900% upsurge from existing levels. It’s also expected that EVs will account for 60% of new car sales by then, a drastic increase from 5% in 2020.

On a broader scale, the global EV market is set to register a compound annual growth rate of 25% through 2030, indicating a market size of nearly $1 trillion by that time. While competition is heating up tremendously, Tesla is well-positioned to remain a winner in the years to come. In 2021, the company was responsible for almost 70% of registered EVs in the U.S. and it reigns over nearly 15% of the global EV market. In other words, it’s not Tesla that investors should worry about when considering increased competition in the industry.

Stay away: Steep valuation

At face value, Tesla’s valuation appears outrageous. The stock is trading at 95.8 times earnings today, indicating a lofty valuation in and of itself. Comparing the EV giant’s price-to-earnings (P/E) multiple to that of other automobile manufacturers paints an even clearer picture.

TSLA PE Ratio data by YCharts

Competitors Ford, General Motors, and Toyota carry price-to-earnings multiples of 4.5, 6, and 8.5, respectively, serving steep discounts compared to their EV peer. Whether Tesla warrants a premium valuation is a classic debate; however, there’s no denying that the stock is richly priced today.

Should you buy Tesla?

Tesla is a great company, but its latest pullback has grabbed my attention. That said, it’s still trading at a steep valuation and would need to suffer a far greater correction to be considered cheap. Although Tesla continues to make fantastic strides on the financial front, I’d hold off on buying the stock for now. Not only are there more actionable opportunities available on the market today, but there is also a good chance that macro headwinds and Twitter-related drama drag this stock down further in the coming quarters.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Down almost 30% in the past month, here are 2 reasons to buy Tesla shares and 1 reason to hold off appeared first on The Motley Fool Australia.

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Luke Meindl has positions in Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla and Twitter. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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It’s a good day for the Santos Ltd (ASX: STO) share price. It’s storming higher despite no news having been released by the company.

However, oil prices are on the up-and-up and a broker has tipped a 22% upside for the company’s stock.

At the time of writing, the Santos share price is $8.23, 1.86% higher than its previous close.

For context, the S&P/ASX 200 Index (ASX: XJO) is currently up 0.22% while the S&P/ASX 200 Energy Index (ASX: XEJ) outperforms.

Let’s take a closer look at what might be going on with the oil and gas giant’s shares on Monday.

Santos share price rallies into the week

The Santos share price is in the green today, potentially driven by higher oil prices.

Global oil prices lifted on Friday amid expectations the European Union might ban Russian oil and the lockdown in Shanghai could end on 1 June, according to CommSec.

Brent crude oil price increased 0.5% to US$112.55 a barrel on Friday while the US Nymex crude oil price rose 0.9% to reach US$113.23 a barrel.

That’s likely also helping to boost the energy sector 0.85% higher today. The sector is the ASX 200’s second best performer on Monday and one of just two outperforming the broader market right now.

It’s being led by the Paladin Energy Ltd (ASX: PDN) share price’s 2.38% gain.

Santos’ stock is the index’s second best performer today while that of Woodside Petroleum Limited (ASX: WPL) is coming in third.

Finally, the Santos share price might be being lifted by news of a positive broker note.

As my colleague James Mickleboro reported earlier, Morgans slapped Santos’ shares with a $10 target and an add rating. That represents a 22% upside on its current level.

The Santos share price has gained 24.5% in 2022. It’s also 22.1% higher than it was this time last year.

The post Why is the Santos share price leaping higher on Monday? appeared first on The Motley Fool Australia.

More reading

• 2 ASX energy shares that brokers rate as buys for exposure to sky high oil prices
• 5 things to watch on the ASX 200 on Monday
• Here are the 3 most traded ASX 200 shares on Friday
• New or old energy: Have oil producers bested ASX lithium shares?
• 5 things to watch on the ASX 200 on Thursday

Motley Fool contributor Brooke Cooper 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is heading south today.

At the time of writing, the bank’s shares are 0.63% lower to $25.34.

For context, the S&P/ASX 200 Financials (ASX: XFJ) sector is also slightly in reverse, down 0.68% to 6,506.2 points.

A mixed session on Wall Street on Friday night has led the broader ASX market to trade sideways.

ANZ appoints new board member

The ANZ share price is hovering in negative territory despite the company’s latest announcement to bolster its board.

In its release, ANZ advised that it has appointed experienced global business and technology executive Jeff Smith to its board.

Mr Smith will take up the role of non-executive director from 1 August 2022, subject to meeting regulatory requirements.

ANZ highlighted Mr Smith’s wealth of experience in which he served as chief information officer at several organisations. This includes IBM (NYSE: IBM), Suncorp Group Ltd (ASX: SUN), and Telstra Corp Ltd (ASX: TLS).

Over the last five years, Mr Smith has been chief operating officer of Florida-based World Fuel Services. As such, he will be stepping down from that position at the end of the calendar year.

Mr Smith’s other appointments include being a non-executive director of cloud security company Sonrai Security Inc. He is also an advisor to the boards of Zoom Video Communications Inc and Box Inc.

Notably, Mr Smith was previously a member of ANZ’s International Technology and Digital Business Advisory Panel until 2019.

ANZ chair Paul O’Sullivan touched on the new appointment:

Jeff’s vast experience with technology and executive management will complement the Board and I am confident he will provide valuable service to both the organisation and to ANZ’s shareholders as we continue through a period of significant transformation.

Moving forward, Mr Smith will split his time between Australia and the United States.

He will stand for election as a director at ANZ’s annual general meeting on 15 December 2022.

ANZ share price review

Throughout the year, the ANZ share price has continued to move in circles, reflecting a 7.9% loss for the period.

More recently, investor fears regarding a global economic slowdown have hit the company’s shares hard. In the past month, ANZ shares are down 8.8%.

The company commands a market capitalisation of around $71.24 billion, making it the sixth largest company on the ASX.

The post ANZ shares backtrack despite the bank bolstering its board appeared first on The Motley Fool Australia.

More reading

• Has the ANZ dividend been growing?
• 3 cheap ASX shares set to boom with higher interest rates: Wilsons
• Can ASX 200 banks really see a 15% profit jump if the cash rate hits 1%?
• Experts name 2 ASX dividend shares to buy with big fully franked yields
• Already down 7% in 2022, is the ANZ share price cheap?

Motley Fool contributor Aaron Teboneras 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Woodside Petroleum Ltd (ASX: WPL) share price is off to a good start this week.

The S&P/ASX 200 Index (ASX: XJO) energy giant closed on Friday at $28.77 per share and is currently trading for $29.30, up 1.84%.

That compares to a slim 0.09% gain for the ASX 200 at this same time.

So, why is the Woodside share price outperforming?

Oil edges higher and BHP merger in the spotlight

ASX energy shares, as you’d expect, tend to rise in fall in line with energy costs.

With Brent crude oil prices notching up 1% to just over US$113 per barrel, the Woodside share price is a likely beneficiary.

Then there’s the pending merger with BHP Group Ltd‘s (ASX: BHP) petroleum assets. Shareholders approved the merger last week.

Leading broker Morgans sees a lot of upside from that merger.

According to Morgans:

We believe WPL has benefited from being in the right place, at the right time. With: 1) BHP/WPL having an existing relationship, 2) BHP eager to boost its ESG profile, and 3) WPL being a quality operator (safe hands which is important for BHP).

From an economic standpoint we think WPL is getting the better of the deal, with synergies not baked into deal metrics and BHP willing to accept a discount. The deal is transformative, lifting WPL into being a top 10 global E&P with +2 billion barrels of 2P reserves, with [earnings before interest, tax, depreciation and amortisation] EBITDA of US$4.7bn pa and growth options.

Morgans has a $33.60 target for the Woodside share price. That is some 15% higher than the current share price.

Woodside share price snap shot

The Woodside share price has gained 33% so far in 2022. That compares to a year-to-date loss of around 4% posted by the ASX 200.

Woodside pays a 6.5% trailing dividend yield, fully franked.

The post Why is the Woodside share price having such a strong start to the week? appeared first on The Motley Fool Australia.

More reading

• How are ASX 200 mining shares responding to the election outcome?
• 2 ASX energy shares that brokers rate as buys for exposure to sky high oil prices
• 5 things to watch on the ASX 200 on Monday
• Down 15% since early March, is the Rio Tinto share price an ASX mining buy?
• Everything you need to know about the upcoming BHP dividend

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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Well, it’s still hard to believe, but the long and hard six-week federal election campaign is finally over. Australia has a new prime minister and a new government, just as opinion polls predicted.

Although events like an election are typically somewhat ‘priced in’ by markets leading up to it, the incorrect opinion polls covering the 2019 election no doubt still had everyone hanging on the actual result on Saturday night. But unlike last time, the polls were correct.

So today, let’s look at how ASX shares are reacting to the events of the weekend. Specifically, let’s look at the big ASX iron ore miners.

So on the whole, the ASX is having a pretty strong start to the first day of a new government. At the time of writing, the S&P/ASX 200 Index (ASX: XJO) has risen by 0.52% and is closing back in on 7,200 points. But what of mining shares?

In elections gone by, the mining industry was a red hot election issue. No doubt there are some readers who will remember the ‘mining tax’ debate of a few years ago. But this election, it’s probably fair to say that mining didn’t play a huge role in the election campaign.

And there doesn’t seem to be a whole lot of difference between the two major parties when it comes to the treatment of the mining industry this time around.

How are ASX mining shares reacting to Labor’s win today?

But let’s see how the ASX 200 iron ore giants are reacting to a new Labor Government today.

So first up, let’s check out BHP Group Ltd (ASX: BHP), the undisputed leader of the ASX 200’s resources sector. It’s a very happy day for BHP shares, with the Big Australian rising by a healthy 2.03% so far today to just over $48 a share.

BHP’s stablemate Rio Tinto Limited (ASX: RIO) is also having a happy day. Rio shares are presently up 1.88% at just over $110 each.

But it’s Fortescue Metals Group Limited (ASX: FMG) that is really basking in the election’s afterglow today. Fortescue shares are currently up a pleasing 3.57% at $20.87 each so far.

However, it’s likely that these moves higher are less about what happened on the weekend, and more about the rising iron ore price we have seen over the past few days. Iron ore is now going for more than US$130 a tonne, which would be doing a lot to boost confidence in the ASX’s biggest miners today.

The post How are ASX 200 mining shares responding to the election outcome? appeared first on The Motley Fool Australia.

More reading

• Why is the Woodside share price having such a strong start to the week?
• Down 15% since early March, is the Rio Tinto share price an ASX mining buy?
• 3 reasons why I plan to own my Fortescue shares for the long term
• Everything you need to know about the upcoming BHP dividend
• Why is the Woodside share price dropping 4% today?

Motley Fool contributor Sebastian Bowen 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Flight Centre Travel Group Ltd (ASX: FLT) share price has been climbing the past week.

Shares in the travel company have gained more than 5% since market close on 13 May and are currently trading at $20.62. That’s 0.15% in the green during midday trade on Monday.

Let’s take a look at what’s impacting the Flight Centre share price.

Travel boost

Flight Centre is not the only ASX travel share to rise in the past week. Qantas Airways Limited (ASX: QAN) shares have jumped 3.78% since market close on 13 May, while Webjet Limited (ASX: WEB) shares have surged 8.4%.

Enthusiasm for travel may be impacting the Flight Centre share price. On Thursday last week, Webjet managing director John Guscic expressed a positive outlook for the travel industry during the company’s full year results briefing. Quoted in the Australian Financial Review, Guscic said:

Guess who’s back? Travel’s back, baby.

As my Foolish colleague James reported, Webjet revenue surged 258% to $138 million in FY 2022.

Flight Centre had some positive news of its own last week. On Monday, the company announced it had retained a New South Wales government travel management contract.

The new contract will continue for a further three years at least and covers 80 agencies within the government.

Commenting on the news, Flight Centre’s travel solutions general manager Melissa Elf said:

We’re delighted to have retained this prestigious account and we’re looking forward to helping the New South Wales government achieve its aims.

Australia’s international borders opened to tourists on 21 February. In April, the country’s biosecurity emergency ended, enabling cruise ships to enter Australia. New Zealand will also open its borders to all tourists from 31 July.

Share price snapshot

Flight Centre shares have soared nearly 35% in the past 12 months, leaping nearly 17% year to date.

For perspective, the S&P/ASX 200 Index (ASX: XJO) has climbed 2% during the past year.

Flight Centre has a market capitalisation of about $4.1 billion based on its current share price.

The post The Flight Centre share price has taken off 5% in a week. Is travel really ‘back, baby’? appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• Top brokers name 3 ASX shares to buy next week
• Brokers name 3 ASX shares to buy today
• Webjet share price tipped to rise: Broker says it ‘hasn’t wasted a crisis’
• Webjet share price falls on earnings miss, but broker sees ‘results as a positive’

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 Flight Centre Travel Group Limited and Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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At lunch on Monday, the S&P/ASX 200 Index (ASX: XJO) has started the week on a mildly positive note. The benchmark index is currently up 0.15% to 7,156.8 points.

Here’s what is happening on the ASX 200 today:

Elders’ half-year results impress

The Elders Ltd (ASX: ELD) share price hit a multi-year high on Monday morning. This follows the release of a half-year result that came in well ahead of expectations. The agribusiness company reported a 38% increase in sales revenue to $1,514.8 million and an 80% jump in earnings before interest and tax (EBIT) to $132.8 million. This compares to Goldman Sachs’ estimate of $1,245.2 million and $93.7 million, respectively.

Codan jumps on profit guidance

The Codan Limited (ASX: CDA) share price is rocketing higher today. This follows the release of guidance for FY 2022. According to the release, Codan expects to match its record first-half profit in the second half. This would mean a record full-year profit of $100 million, which represents a year-on-year increase of 56%. Management advised that this strong growth has been supported by its strategy to diversify revenues and profitability.

Incitec Pivot’s half-year results

The Incitec Pivot Ltd (ASX: IPL) share price is tumbling on Monday after the fertiliser and commercial explosives manufacturer’s half-year results disappointed. This was despite the company reporting a 48% increase in revenue to $2,548 and a record half-year profit of $384 million. Incitec Pivot’s revenue appears to have come in ahead of consensus estimates but its earnings fell short.

Best and worst ASX 200 performers

The best performer on the ASX 200 on Monday has been the Codan share price with a 15% gain. This has been driven by its guidance update for FY 2022. Going the other way, the worst performer has been the Block Inc (ASX: SQ2) share price with a 4% decline. This follows a similarly sharp decline by the payments giant’s US-listed shares on Friday night.

The post ASX 200 midday update: Elders and Codan rocket, Incitec Pivot disappoints appeared first on The Motley Fool Australia.

More reading

• Incitec Pivot share price fizzles despite half-year earnings increasing tenfold
• Why the IGO share price is rallying on Monday
• Elders share price jumps 9% on stellar first-half profit growth
• Codan share price jumps 10% amid guidance for ‘record’ FY22 profit
• 5 things to watch on the ASX 200 on Monday

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 positions in and has recommended Block, Inc. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool Australia has recommended Elders Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Today is just like any other Monday on the ASX, or is it? For the first time in nine years, the market is waking up to a Labor Government and that could put pressure on AGL Energy Limited (ASX: AGL) shares.

Saturday’s election was “won and lost on climate”, Mike Cannon-Brookes, AGL’s major shareholder and activist against its planned demerger, was quoted by The Australian as saying.

At the time of writing, the AGL share price is $8.60, 0.41% lower than its previous close.

In comparison, the S&P/ASX 200 Index (ASX: XJO) is currently up 0.41%.

So, what could the change in government mean for AGL shares? Let’s take a look.

Could a change in government pressure AGL shares?

Atlassian Corporation founder and boss, Cannon-Brookes has celebrated the results of 2022’s Federal election. The vote saw unprecedented support for Climate 200-backed ‘teal’ independents and the Greens.

He said such results show Australians and owners of AGL shares want greater action on climate change.

People standing for stronger action on climate is the consistent message tonight – across inner city, suburban & rural seats.

Big swings to the Indies, to the Greens, to Labor over LNP (in two party seats).

An incredible, amazing mandate.

Australia! #AusVotes22

— Mike Cannon-Brookes (@mcannonbrookes) May 21, 2022

https://platform.twitter.com/widgets.js

It was only eight months ago that 55% of the company’s shareholders voted for the company to implement Paris Agreement-aligned emissions targets. And the weekend’s Labor win could increase pressure.

Australia’s goal to reach net-zero by 2050 won’t change alongside the government. However, Labor’s short-term emissions reduction plan differs from that of the outgoing Coalition.

Labor is working to see Australia’s emissions fall 43% by 2030. Meanwhile, an outcry of support for the Greens and climate-focused independents could highlight a demand for stronger targets.  That could be bad news for Australia’s biggest emitter.

“The AGL board should pay attention to its shareholders and the mood of the country,” Cannon-Brookes was quoted by The Australian as saying.

“A demerger plan that is not aligned to Paris targets is not going to fly … Australia has its sights set on a brighter future and the opportunities that decarbonisation will bring.”

The demerger plan

The company’s planned demerger will see it split into energy retailer AGL Australia and energy generator Accel Energy. AGL Australia will aim to reduce its emissions by 50% by 2030 and reach net zero by 2040. Meanwhile, Accel Energy is aiming to ditch coal-fired power generation by no later than 2045.

AGL CEO Graeme Hunt hit back at Cannon-Brookes’ comments. The publication quoted Hunt as saying:

AGL shares the ambition for decisive action on climate, while ensuring affordable energy, and looks forward to working with the Albanese government to achieve this.

[AGL’s decarbonisation] must be done in a way that protects and enhances system stability, affordability, and reliability for customers and shareholder value.

The post What might an ‘election won and lost on climate’ mean for AGL shares? appeared first on The Motley Fool Australia.

More reading

• Here’s why AGL shares hit the headlines again on Friday
• Why have AGL shares been getting so much love on Tuesday?
• Here are the 3 most heavily traded ASX 200 shares on Tuesday
• AGL share price bounces back amid latest demerger opposition
• How dependant on coal closure is the AGL share price?

Motley Fool contributor Brooke Cooper 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Pointerra Ltd (ASX: 3DP) share price has continued its positive run on Monday.

In morning trade, the geospatial data technology company’s shares are up over 9% to 29 cents.

This means that the Pointerra share price is now up over 50% since last Tuesday.

Why is the Pointerra share price rocketing higher?

The recent gain by the Pointerra share price is a bit of a mystery as there has been no news out of the company since the end of April.

That last piece of news saw the company report a 13% or US$1.9 million increase in quarterly annual contract value (ACV). This brought its total ACV to US$16.28 million as of 29 April 2022.

Management highlighted that its Pointerra3D service is rapidly becoming a “must-have” platform for the US energy utility sector with existing customers advocating adoption of the company’s digital twin solution amongst peer utilities.

This is expected to drive further growth in platform deployment and ACV across Pointerra’s largest sector.

In light of this positive outlook and the Pointerra share price down by over 50% since this time last year, it appears that some investors believe a buying opportunity has been created.

The post Why has the Pointerra share price rocketed 50% in less than a week? appeared first on The Motley Fool Australia.

More reading

• Pointerra share price in the red despite ‘landmark quarter’

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 positions in and has recommended Pointerra Limited. The Motley Fool Australia has recommended Pointerra Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you own A2 Milk Company Ltd (ASX: A2M) shares, you may be wondering if the infant formula company could garner some extra sales from the current supply crisis playing out in the United States.

While A2 Milk has yet to step in to help fill the void, some other international companies, like European based Danone, have tripled their exports to the States in recent months,

Why is the US running short of baby formula?

The US produces almost all of its own baby formula for domestic consumption.

But the market is dominated by a few top players. That’s led to some distressing shortages over the past few months, which has investors wondering if A2 Milk shares could receive some helpful tailwinds.

The formula crisis commenced on 17 February, when one of the top formula producers in the country, Abbott Laboratories, shuttered a manufacturing plant after discovering bacteria on site. Abbott then recalled many of its top formulas, sparking a mass shortage of infant formula.

And Abbott’s woes have opened up a window of opportunity for the international competition after the US Food and Drug Administration increased formula imports to stem the shortage.

This is big business in the world’s number one economy, estimated to be worth US$4.8 billion annually.

According to Barclays analyst Warren Ackerman (courtesy of Reuters), “Abbott looks to have lost around 2000 basis points of share, going from 40% share to 20%,” of the US infant formula market.

Can A2 Milk shares benefit?

A2 Milk shareholders hoping to see the Aussie company swoop in for some of that lucrative market share could be disappointed, according to Infant Nutrition Council of Australia and New Zealand CEO Jan Carey.

Carey thinks the window of opportunity for international companies will be “a very short-term opportunity”.

According to Carey (quoted by RNZ News):

It’s incredibly difficult to get products into the market in the United States. The regulation is very hard, there’s a number of hoops that you’ve got to jump through, it’s very difficult.

And it shows. Because it’s so difficult, there aren’t very many infant formula companies in the United States, and so when a supply issue happens, they’re really in a lot of trouble.

If A2 Milk wants part of the action, the company will have to move fast.

“I’ve been in touch with my counterparts in the US and this is a short-term crisis, that should be over in the next six-to-eight weeks,” Carey added.

But not everyone agrees.

A2 Milk shares get broker upgrade on US shortage

A2 Milk shares are up 5.1% in morning trade to $4.50 per share.

With the US shortage in mind the company received an upgrade from Citi to Neutral.

Citi didn’t dismiss lingering downside risks to the infant formula company’s business.

However, the broker said (courtesy of The Australian), “The potential development of a credible US IMF strategy to respond to the current shortage may lead to a re-rating. Further, after underperforming the ASX 200 by about 12% since beginning of April, A2’s share price is now broadly in line with our new target price of $4.64.”

Citi’s target price is some 3% above where A2 Milk shares are currently trading.

The post Can A2 Milk shares benefit from the US baby formula shortage? appeared first on The Motley Fool Australia.

More reading

• A2 Milk share price wavers amid class action news
• Why is the A2 Milk share price falling today?
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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 Scott Phillips.

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