On Monday the A2 Milk Company Ltd (ASX: A2M) share price continued its disappointing run with another sizeable decline.
The fresh milk and infant formula company’s shares plunged 13% to $6.10.
This means the a2 Milk share price is now down a whopping 70% from its 52-week high.
Why did the a2 Milk share price crash lower?
Investors were selling the company’s shares on Monday after it downgraded its FY 2021 guidance for a fourth time.
Back in August 2020, a2 Milk was guiding to “strong revenue growth” on the NZ$1.73 billion it achieved in FY 2020 and an EBITDA margin of 30% to 31%.
Whereas management now expects revenue of NZ$1.2 billion to NZ$1.25 billion with an EBITDA margin of 11% to 12%. This implies EBITDA of just NZ$132 million to NZ$150 million, which will be down 73% to 76% year on year.
What do brokers think?
Given the significant weakness in the a2 Milk share price, investors will no doubt be wondering whether its shares are cheap now. Well, opinion is divided in the broker community.
One broker that doesn’t think its shares are cheap is Credit Suisse. This morning the broker retained its underperform rating and cut its price target to $5.00. It estimates that its shares are changing hands for 34x FY 2022 earnings at present.
Macquarie Group Ltd (ASX: MQG) is also bearish. It downgraded its shares to an underperform rating and cut the price target on them to $5.60.
As is Citi, which has retained its sell rating and cut its price target to $5.85.
Morgans is a little more positive. It has retained its hold rating but slashed its price target to $6.65. Based on its forecasts, it estimates that its shares are trading at 26x FY 2022 earnings.
Elsewhere, Bell Potter has retained its buy rating and cut its price target to $8.50, Morgan Stanley has a $7.10 price target, and UBS has a buy rating and lofty NZ$13.50 (A$12.52) price target. All three targets offer meaningful upside from the current a2 Milk share price of $6.10.
In respect to the latter note, UBS believes the actions management is taking will restore inventory to healthy levels by the first quarter of FY 2022. It appears optimistic that this will avoid any brand damage.
Time will tell which broker makes the right call.