Is there still hope for the A2 Milk share price in 2022?

Could the embattled milk company’s shares be an opportunity this year?

| More on:
a woman sits with a glass of milk in front of her as she puts a finger to the side of her face as though in thought while her eyes look to the side as though she is contemplating something.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The A2 Milk share price has suffered recently
  • Yet some analysts’ price targets imply upside for the company
  • Management is expecting revenue growth in the second half of FY22

The A2 Milk Company Ltd (ASX: A2M) share price has had a difficult period during COVID-19. But could there still be hope for the company over the rest of the year?

Since the start of July 2020, the A2 Milk share price has fallen by around 75%. In the 2022 calendar year, A2 Milk shares have fallen around 16%.

Could the under-pressure business actually be an opportunity?

Some broker opinions are not optimistic about the business in the short term, but the price targets suggest upside.

Are negatives building for the A2 Milk share price?

One of the most recent notes on A2 Milk came from Credit Suisse. It’s currently neutral on the company, however, it reduced its price target from $5.75 to $5.15. This implies a potential rise of around 10%.

There are a few factors affecting the broker’s opinion of the business. The number of babies born in China is expected to fall this year, meaning this could lead to lower demand for A2 Milk’s products because there are less mouths to feed. Credit Suisse has reduced its expectations of profit.

Lockdowns in China are also expected to hurt short-term online revenue in the country. For example, Shanghai, one of the biggest cities in the country, has been in lockdown for weeks. The lockdowns are reportedly impacting various parts of the country.

However, the A2 Milk share price could benefit with Credit Suisse expecting the company to continue growing its market share in the country over the next couple of years.

Credit Suisse puts the A2 Milk share price at 33x FY22’s estimated earnings and 29x FY23’s estimated earnings.

Other ratings

There are, of course, other ratings on A2 Milk and some of the negative ones now have price targets that imply a notable gain for the company.

For example, the brokers at Macquarie rated the A2 Milk share price as ‘underperform’. However, the price target of $5.60 offers a potential upside of around 20%. It noted the growing market share for the company.

Citi currently rates the company as a sell. The price target is $4.80 because of the impacts of COVID-19 on China.

Morgans rates the business as a hold but has an A2 Milk share price target of $6.39. That suggests a possible rise of almost 40% over the next year. The broker thinks that the leadership has done well to stop the decline.

A2 Milk outlook

A2 Milk gave its thoughts about the short term when it released its FY22 half-year result.

It said that the revenue growth outlook for FY22 had improved, with FY22 second-half revenue expected to be “significantly higher” than the second half of FY21 and higher than the first half of FY22, thanks to growth in Chinese label and English label infant formula.

However, improvement in revenue is not expected to translate into higher earnings this year as it planned to increase investment for growth.

Motley Fool contributor Tristan Harrison 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 and Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Consumer Staples & Discretionary Shares

A laughing woman pushes her friend in a supermarket trolley
Consumer Staples & Discretionary Shares

Why are ASX 200 retail shares getting bought up today?

Shopping confidence increased in June.

Read more »

Worried ASX share investor looking at laptop screen
Retail Shares

Why did the Wesfarmers share price tumble 11% in June?

We check what was weighing on the conglomerate's stock last month.

Read more »

happy man feeding baby in the home kitchen
Consumer Staples & Discretionary Shares

Why is the Bubs share price taking off today?

Bubs shares are starting the week on a positive note.

Read more »

Sports fans looking at smart phone representing surging pointsbet share price
Consumer Staples & Discretionary Shares

Up 15% this week, what’s going on with the Pointsbet share price?

It's been a good week to own Pointsbet shares.

Read more »

An older couple holding hands as they laugh while bouncing on a trampoline feeling happy that the Ardent Leisure share price is going up today
Consumer Staples & Discretionary Shares

Why is the Ardent Leisure share price jumping 9% today?

Ardent Leisure shareholders will be gearing up for a payday next month.

Read more »

A woman who used buy now, pay later receives her online shopping in the post only to find it's not what she wanted.
Consumer Staples & Discretionary Shares

Kogan shares slide 7% nearing a 52-week low

Kogan shares are falling today, but they are not alone in the sector.

Read more »

A woman looks unsure as she ladles mixture into a pan surrounded by small appliances
Consumer Staples & Discretionary Shares

Is the Breville share price out of the bargain bin?

The Breville share price is down 40% in 2022 -- but has gone up 5% in the past five trading…

Read more »

Happy woman looking for groceries. as she watches the Coles share price and Woolworths share price on her phone
Consumer Staples & Discretionary Shares

How did the Coles share price stay positive in June while the ASX 200 slumped?

Over a tumultuous month of trading for the ASX 200, the Coles share price is one of just a few…

Read more »