It certainly has been a disappointing year for the A2 Milk Company Ltd (ASX: A2M) share price.
Despite a strong rally this week, the infant formula company’s shares are down 41% in 2021 at $6.86.
Could the A2 Milk share price reach $8 by the end of the year?
One leading broker that believes the A2 Milk share price weakness in 2021 is a buying opportunity is Bell Potter.
According to a recent note, the broker has retained its buy rating and $7.70 price target on the company’s shares.
Based on the current A2 Milk share price, this implies potential upside of 12% for investors.
What did the broker say?
Bell Potter has been looking at recent industry and export data and appears optimistic that things are improving in the infant formula market.
Commenting on Australia-China exports, which are a Daigou proxy, the broker said:
Industry volumes rose +5% YOY in Aug’21, the second positive YOY outcome in the past four months. Volumes have been volatile in recent months, but in general terms are demonstrating signs of picking up from the lows seen in 2Q-3Q20. On a R3M basis, volumes are up +42% from the Jan’21 low.
In addition to this, the broker felt that the A2 Milk share price was trading at an undemanding level. And while it has since rallied this week following a positive update from smaller rival Bubs Australia Ltd (ASX: BUB), Bell Potter is likely to still feel the same way given the potential upside on offer.
There is no change to our Buy rating, earnings forecasts or A$7.70ps target price. In recent months we have seen a bottoming in trade flows into China and closer alignment of trade flows into and out of Australia. Trading at 14.3x FY22e EBITDA exMVM/US losses we don’t see A2M as particularly demanding relative to other China facing FMCG entities.
All in all, the broker appears to see potential for the A2 Milk share price to be trading close to $8 at the end of the year. A strong update at its investor event later this month or AGM next month could play a key role in that.