Why is the Bubs share price toddling higher on Monday?

Bubs shares have started the week positively…

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Key points

  • Bubs' shares are pushing higher on Monday
  • This appears to have been driven by further optimism that Bubs could benefit from infant formula shortages in the US
  • Citi expects Bubs to benefit more than A2 Milk

The Bubs Australia Ltd (ASX: BUB) share price has been a positive performer on Monday.

In afternoon trade, the infant formula company’s shares are up over 2% to 44.5 cents.

Why is the Bubs share price rising today?

The catalyst for the rise by the Bubs share price on Monday has once again been optimism relating to the company’s prospects in the US market.

As I mentioned here last week, there are shortages of infant formula in the massive US market, which has led to the US Food and Drug Administration (FDA) taking steps to boost supplies.

US FDA Commissioner, Robert M. Califf M.D., commented:

We are also taking a look at the supply of infant formulas developed by manufacturers across the country and around the world to determine if a reallocation of their distribution can be made to help get the right product to the right place, at the right time.

What’s the latest?

This morning, analysts at Citi suggested that Bubs could be a bigger winner from these shortages than larger rival A2 Milk Company Ltd (ASX: A2M).

This is because Bubs launched its Aussie Bubs brand formula range on a number of ecommerce platforms in the country late last year and has since followed this up with listings in a number of supermarkets.

Citi estimates that if Bubs could secure a 1% share of the market, it could result in three to four times upside to the company’s forecast FY 2023 EBITDA.

The broker currently has a buy rating and 59 cents price target on the company’s shares. Based on the current Bubs share price, this implies potential upside of 32% for investors over the next 12 months.

Motley Fool contributor James Mickleboro 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 BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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