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.
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.