The A2 Milk Company Ltd (ASX: A2M) share price is having another positive day.
In morning trade, the infant formula company's shares are up almost 2% to $6.20.
This latest gain means the A2 Milk share price is now up 40% over the last six months.
Can the A2 Milk share price keep rising?
While there is unlikely to be another 40% gain over the next six months, one leading broker sees scope for the A2 Milk share price to continue its ascent.
According to a recent note out of Bell Potter, its analysts have retained their buy rating with a $6.80 price target.
This implies potential upside of approximately 10% for investors from current levels.
Why is the broker bullish?
Bell Potter is positive on the company due to its strategy that aims to delivers sales of NZ$2 billion and EBITDA margins in the teens by FY 2026.
It highlights that this would implies very strong earnings per share growth over the coming years, which would more than justify the current multiples its shares trade on.
The broker also sees a major opportunity in the United States for its infant formula following the recent receipt of FDA approval. It explained:
A2M has stated that through its manufacturing partner, SM1, it has access to ~9m tins of IMF capacity. However, A2M's initial expectations are for the supply of up to ~1m tins in 2H23e. This does not appear an egregious forecast, given we estimate BUB sold ~0.45m tins into the US over 4Q22-1Q23 with 6,500 distribution points and A2M has 27,400 existing distribution points for its fresh portfolio.
Our Buy rating is unchanged. 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. We view the initial entry into the US IMF category as incrementally positive, though note the scale of A2M's existing US fresh distribution footprint implies this could be a more meaningful contributor should sales velocities approach levels seen in other markets.
