The A2 Milk Company Ltd (ASX: A2M) share price is having a nice run of late, up almost 17% over the past fortnight.
Shares of the baby formula company closed Thursday's session at $5.58 each after fetching $4.79 a share two weeks ago.
A2 Milk is also far outperforming the S&P/ASX 200 Consumer Staples Index (ASX: XSJ). It's down 0.63% over the same timeframe.
Certainly, the company has posted some significant announcements recently. Let's have a closer look.
Buying back shares
In its better-than-expected FY22 results, A2 Milk announced it would initiate a $135 million on-market share buyback program.
Share buybacks can sometimes be seen as a signal the company believes its shares are undervalued.
No doubt helping the decision was the significant amount of cash on the company's balance sheet — $816.5 million.
Positive FY22 results
A2 Milk was upbeat about its FY22 earnings, with the company noting that its top and bottom lines increased significantly.
Net profit after tax (NPAT) surged 42.3% to $103 million, while revenue climbed 19.8% to $1.29 billion.
The company also gave delivered positive outlook for FY23, saying it expects increased demand for its products in China.
Bullish price target from broker
Bell Potter analysts published a note, upgrading A2Milk to a buy rating with a price target of $6.35. That's an appreciable 13.8% upside on the current share price.
Bell Potter is bullish on the company after it beat its analysts' forecasts for FY22.
The broker said:
We upgrade our rating from Hold to Buy. If A2M can execute on its strategy to achieve ~NZ$2Bn in FY26e revenues and EBITDA margins in the teens, then it would imply compound double digit EPS growth through to FY26e. Exiting the US, transitioning MVM towards nutritionals or execution of buybacks could accelerate this growth trajectory. Recent easing in dairy (notably SMP) and vegetable oil ingredient forward rates also imply the scope for favourable COGS movements in FY24e.
A2 Milk share price snapshot
A2 Milk's share price is up 2.2% year to date. It's fared better than the S&P/ASX 200 Index (ASX: XJO) which has lost 8% over the same period.
The company's market capitalisation is currently around $4.15 billion.
