Why the a2 Milk Company Ltd (Australia) share price could be heading to a record high

The a2 Milk Company Ltd (ASX: A2M) (Australia) share price could be among the market’s top performers later today, after the company upgraded its full year revenue guidance for the second time in less than two months.

a2 Milk now expects revenue for the full year to be NZ$545 million, compared to prior guidance for NZ$520 million, which represents a near 5% uplift to guidance. Moreover, the upgrade appears to be largely the result of accelerating sales growth for the quarter ending June 30 2017 in an auspicious sign for investors that this company’s best days may still be ahead of it.

The company previously stated that it expected revenues of NZ$388.5 million for the nine-month period ending March 31 2017, which equates to around NZ$129.5 million per quarter, with the final quarter now looking like it will pull in around NZ$136.25 million based on the updated guidance.

The company also flagged that marketing expenses in China were now likely to come in NZ$5 million lower than previously forecast in another good result for shareholders as cost outs generally have a bottom-line boosting effect.

The New Zealand-based company’s a2-only-protein infant formula business is reported to be fuelling most of the growth, especially via demand in China.

However, its a2-only-protein milk product aimed at the general population is also reported to be selling well, especially in its core Australian market.

a2 Milk also has distribution operations in North America and the UK and looks a growth stock to watch given its promise of healthier milk appears to be hitting the mark with consumers all round the world. Its NZX-listed scrip is trading 3.1% higher in morning trade, with the Australian scrip likely to mirror that performance later today. Given the strong final quarter reported today, I would not be surprised to see the ASX scrip hit $4 next week.

Other consumer stocks to watch in this space include baby formula making rival Bellamy’s Australia Ltd (ASX: BAL) and vitamins manufacturer Blackmores Limited (ASX: BKL). The profits of all three have fluctuated wildly due to their leverage to the mysteries of wider Chinese demand and investors in these businesses should prepare for some volatility.

I rate Blackmores and a2 Milk as holds for now, although on cheaper valuations I am an interested buyer.

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Motley Fool contributor Tom Richardson owns shares of A2 Milk and Blackmores Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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