Can A2 Milk shares cash in on a US deal like Bubs?

A2 Milk has applied to the US Food and Drug Administration to supply infant milk formula.

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Key points

  • A2 Milk shares have surged nearly 10% since the start of the week 
  • Bubs Australia has recently signed a major agreement with the US Government 
  • A2 Milk revealed it has also recently applied for FDA approval for its infant formula 

The A2 Milk Company Ltd (ASX: A2M) share price has had a stellar start to the week, but could it go higher on the back of any potential US deal?

A2 Milk shares have jumped almost 10% since market close on Friday to $4.74. In today’s trade, the company’s share price is currently 0.63% in the red.  For perspective, the S&P/ASX 200 Index (ASX: XJO) is down 0.48% today.

Let’s take a look at the outlook for A2 Milk shares.

A2 Milk seeks US FDA approval

A2 Milk would like to cash in on the US infant formula market like Bubs Australia Ltd (ASX: BUB), according to media reports.

Bubs shares soared 40% yesterday after the company signed a deal with the Biden Administration to supply 1.5 million tonnes of infant formula.

President Joe Biden tweeted yesterday: “I’ve got more good news: 27.5 million bottles of safe infant formula manufactured by Bubs Australia are coming to the United States”.

A major US baby formula production plant run by Abbott Laboratories (NYSE: ABT) recently shut down temporarily due to a bacterial infection, causing a nationwide shortage of the product.

However, now the A2 Milk managing director and CEO David Bortolussi has revealed the company has applied to the US Food and Drug Administration (FDA) to supply infant milk formula.

Commenting on the potential for a US deal to Reuters, Bortolussi said: “We are able to provide support … leveraging our existing U.S. presence and distribution capability.”

Broker Barrenjoey is optimistic A2 Milk could target the US market, the Financial Review reported today.

Analysts noted breaking into the US WIC subsidy program has been difficult for outsiders in the past, “perhaps until now”. The broker added:

The US infant milk formula (IMF) industry is unique as the federal government purchases more than half the IMF consumed via its WIC subsidy program. The government then resells product to retailers at reduced prices to ensure affordability.

A2 Milk share price snapshot

The A2 Milk share price has slid 14% in the past year, while it has fallen 13% year to date.

For perspective, the benchmark S&P/ASX 200 Index (ASX: XJO) has returned about 1% in the past year.

A2Milk has a a market capitalisation of about $3.5 billion based on today’s share price.

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. 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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