Here's why the A2 Milk (ASX:A2M) share price is up 9% in a week

Shares in the infant formula company have been on fire this past week, surging more than 9% in the the last 7 days.

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The A2 Milk Company Ltd (ASX: A2M) share price has been on fire this past week.

In the last 7 days, shares in the infant formula company have surged more than 9% and are currently trading at $5.87, up 2.62%.

Let's take a look at what's been fuelling the A2 Milk share price lately.  

Positive broker note

Unlike many other companies, the A2 Milk share price has bucked broader market volatility over the past week.

This euphoric price action can possibly be attributed to a recent note from leading broker Bell Potter.

According to the note, analysts see a lot of value in the embattled infant formula company. The broker retained its buy rating on A2 Milk with a revised share price target of $7.70.

Analysts said the market had underestimated the impact that inventory swaps and sales pullbacks had on A2 Milk. As a result, the broker expects top-line company growth to resume.

Looking ahead at FY22, the analysts predicted that A2 Milk would deliver a 10.3% increase in sales to NZ$1,332 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$212.8 million.

In FY23, they expect the company to deliver another 10.5% lift in sales to NZ$1,472 million and a 21.3% increase in EBITDA to NZ$258.2 million.

Despite the promising outlook, Bell Potter analysts noted that near-term trading would remain tough for A2 Milk.

How did A2 Milk perform in FY21?

Late last month, the A2 Milk share price continued its decline following a dour FY21 result.

For the full year, the company reported a 30% drop in revenue to NZ$1.21 billion.

In addition, the former market darling noted a 77.6% reduction in EBITDA to NZ$123 million.

Other key points from A2 Milk's report included;

  • Stock write-downs of NZ$109 million
  • Net profit after tax down 79.1% to NZ$80.7 million
  • Cash balance of NZ$875.2 million.

A2 Milk advised investors that the company would review its growth strategy, given the rapid changes to its market.

A2 Milk share price snapshot

Despite rallying in the past week, shares in A2 Milk remain more than 48% lower since the start of 2021.

The A2 Milk share price is also down 65.7% in the 12 months since this time last year.

Motley Fool contributor Nikhil Gangaram owns shares of A2 Milk. 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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