A2 Milk Company Ltd (ASX: A2M) shares will be in focus next week when the struggling infant formula company releases its half year results.
Ahead of the release, let's take a look to see what is expected from the former market darling.
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What is the market expecting from A2 Milk?
Expectations are very low for A2 Milk again in FY 2022 due to tough trading conditions and changing consumer preferences in China.
According to CommSec, the market consensus estimate is for a net profit after tax of NZ$60 million for the six months ended 31 December. This will be down 50% from NZ$120 million during the prior corresponding period.
The team at Morgans agrees with the view that A2 Milk will post a sizeable reduction in profits again.
It said: "We expect 1H22 NPAT will be down materially on the pcp given lower revenue, increased costs, five months of MVM losses, higher D&A, reduced interest income and a much higher tax rate."
What about the full year?
Unfortunately, a similarly subdued performance is expected in the second half. For example, Bell Potter is forecasting full year net profit after tax of NZ$117.7 million on revenue of NZ$1,346.1 million. This profit is less than what it recorded during the first half of FY 2021.
However, despite its struggles, Bell Potter remains positive on A2 Milk shares. In fact, the broker has a buy rating and $7.70 price target on the company's shares. Based on where they are trading at present, this implies potential upside of 45% over the next 12 months.
Bell Potter is positive on the future and sees potential for a big recovery in its earnings over the coming years.
It said: "We see the scope for EPS to double by FY26e, if A2M can execute on the China offline expansion strategy, while regaining 50% of the lost sales (from FY20-21) in English label IMF. Exiting the loss making US assets or navigating a turnaround at the MVM asset would likely accelerate this turnaround. We do not see the current share price as reflecting this potential."
