Is it time to give the A2 Milk (ASX:A2M) share price another chance?

The A2 Milk Company Ltd (ASX: A2M) share price has staged a small recovery this week. Is it time to give the market darling another chance?

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The discounted A2 Milk Company Ltd (ASX: A2M) share price has likely tempted many investors to buy the ex-market darling.

The A2 Milk share price has made a small bounce since last week. However, this change has come without any major changes or announcements from the company. Could this be another so-called ‘dead cat bounce’? 

UBS slaps a buy rating on the A2 Milk share price

UBS has come forth with a bold buy rating for A2 Milk shares on Wednesday. A meaningful recovery in daigou infant formula sales over the next two years and substantial market share gains in China underpins its buy recommendation. 

Despite a positive medium-term view, the broker lowered its net profit estimates by 4-12% for FY21-23. This is due to slower sales recovery and greater short-term pressures in margins. Its target price was also reduced from NZ$16 ($14.86) to NZ$15.50 ($14.39). 

Other brokers say otherwise 

Brokers are divided for where the A2 Milk share price will go next. In the case of Citi and Credit Suisse, both brokers were a respective sell and underperform rated on A2 shares with a $7.15 target price. 

After conducting a survey, Citi’s US retail team observed that consumers in China are currently more likely to buy domestic athletic brands compared to foreign athletic brands such as Nike and Adidas. The broker believes this trend is consistent in other consumer-related categories including infant formula and vitamins. 

Credit Suisse’s commentary highlights the decline in birth rates. Furthermore, it is expected that babies of infant formula age will be around 30% lower in 2025 compared with 2018. The broker believes this could undermine the anticipated recovery for A2 Milk. 

Big shareholders continue to sell A2 Milk 

On 23 April, the Commonwealth Bank of Australia (ASX: CBA) announced that it had reduced its stake in A2 Milk from 46.9 million shares, or 6.34% of the company, to 39.5 million shares, or 5.32%. 

Five days later, CBA disposed of another 2.5 million shares, reducing its holding to 37 million shares, equivalent to 4.97% of the company. 

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and 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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