Motley Fool Australia

Neutral view on A2 Milk Company Ltd despite lower earnings

milk, diary, A2

A2 Milk Company Ltd (ASX: A2M) is up nearly 2% to $10.75. The share price has returned over 220% in a year, and the forward price-earnings-ratio is 44x.

An earning’s update by the company implies an approximate 10% downgrade. Stronger gross margins and lower marketing costs had been previously predicted.

UBS has left its Neutral rating unchanged but has cut its FY18 forecasts by 10% due to:

  • Lower revenue in FY18
  • Gross margins remaining unchanged
  • 2H18 higher marketing spend.

Further out UBS expects downgrades to be more moderate due to recent price increases in China, increased penetration of China, and ongong shift to higher margin products.

A robust medium term outlook for A2 Milk was reaffirmed by UBS’s recent China visit, which is already in the price.

Treasury Wine Estates Ltd (ASX: TWE) trading in the same sector, has been hit today by a media report that the company has caused a wine glut in China. The share price is down 6% at the time of writing.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Motley Fool contributor Rosemary Steinfort has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Treasury Wine Estates Limited. 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 Scott Phillips.

Related Articles…