Top broker tips A2 Milk (ASX:A2M) share price to jump 37%

Are the good times about to return for A2 Milk?

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The A2 Milk Company Ltd (ASX: A2M) share price will be one to watch this morning.

As well as announcing the appointment of its new Chief Marketing Officer, Edith Bailey, the fresh milk and infant formula company was the subject of a reasonably bullish broker note.

Is the A2 Milk share price good value?

According to a note out of Bell Potter, its analysts have retained their buy rating and $8.50 price target on its shares.

Based on the latest A2 Milk share price of $6.20, this implies potential upside of 37% over the next 12 months.

Bell Potter notes that there are a number of key data points that are improving, which it appears to believe could be a sign that the company is over the worst of its issues.

This includes Australia-China exports, which it classes as a Daigou proxy. The broker points out that volumes have demonstrated their first year on year increase since May 2019 and were up 56% year on year in May 2021. Furthermore, sequentially, four of the last five months have experienced month on month growth, with May 2021 the highest reading since June 2020.

In addition to this, it notes that while Chinese infant formula imports from the EU, New Zealand and Australia are still in decline year on year, volumes look to have formed a bottom in recent months. Bell Potter notes that volumes were recently up 29% from January 2021 lows, with three consecutive month on month gains.

It concluded: “Our analysis of the data is beginning to show: (1) activity returning to CBEC ordering activity the past two months; (2) continued resilience in China offline infill activity for A2M; and (3) a bottoming of IMF exports to China from all major exporting regions, with a similar pattern emerging in our Daigou proxy shipments (AUS-China shipments). Of surprise is the YOY gain in Aus-China shipments in May’21, noting easier YOY comparisons.”

In light of the above, the broker believes the A2 Milk share price is in the buy zone right now.

Should you invest $1,000 in A2 Milk right now?

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia 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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