Results preview: A2 Milk Company Ltd

One of the most hotly anticipated half-year results this earnings season is likely to be the A2 Milk Company Ltd (ASX: A2M) result on Wednesday February 21.

The a2 Milk Company share price has been on a tear over the last 12 months and the market will no doubt be expecting a bumper profit result to justify these gains.

What is expected from a2 Milk Company next week?

According to a note out of Goldman Sachs this week, the broker has high expectations for Wednesday’s results release.

On the top line Goldman expects the fast-growing dairy company to deliver a 56% increase in sales on the prior corresponding period to NZ$400.6 million.

Whereas earnings before interest, tax, depreciation, and amortisation (EBITDA) is predicted to grow at an even quicker rate of 80% to NZ$119.6 million.

To achieve this the broker believes a2 Milk Company will achieve a gross margin of 48.5%, up from 46.5% in the first-half of FY 2017. This margin expansion is expected to be driven by a sales mix shift to higher margin infant formula.

Goldman will also be looking out for an increase in the sales generated from the mother and baby store channel. It accounted for around 8% of its infant formula sales in FY 2017, but the broker believes this could be closer to 15% in FY 2018 thanks to its increased presence and favourable regulatory changes in China.

Looking further ahead, the broker has forecast revenue and EBITDA growth of 54% and 74%, respectively, for FY 2018.

In light of this bullish forecast, Goldman Sachs has a buy rating and $8.85 price target on a2 Milk Company’s shares.

Should you invest?

Although I think a2 Milk Company is one of the best buy and hold investment options on the local market and capable of smashing Goldman’s expectations, buying just ahead of an earnings release does carry a fair bit of risk. This is especially the case for a company with so much growth already built into its shares.

As a result, I think investors would be better off waiting for the results release before making an investment. The same applies to both Bellamy’s Australia Ltd (ASX: BAL) and Blackmores Limited (ASX: BKL) which also have results due in the next seven days.

In the meantime, these top growth shares could be ready for an investment right away. Like a2 Milk Company, I'm tipping them for big things this year.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. 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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