What is Goldman Sachs saying about A2 Milk shares?

A2 Milk shares have been hammered this year. Is it time to buy?

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A2 Milk Company Ltd (ASX: A2M) shares have been having a tough time this year.

Since the start of 2023, the infant formula company's shares have lost approximately 36% of their value.

In light of this, investors may be wondering if this is a buying opportunity. Let's find out if it is.

Are A2 Milk shares in the buy zone?

According to a note out of Goldman Sachs, its analysts are not in a rush to buy the company's shares.

Following a review of consumer stocks, this morning the broker has reaffirmed its sell rating and $4.20 price target.

This implies a potential downside of 5% from current levels.

What did the broker say?

Goldman has been looking at ASX consumer shares with international exposure and is currently only positive on one name – Treasury Wine Estates Ltd (ASX: TWE).

In respect to the others, it has a neutral rating on Breville Group Ltd (ASX: BRG) and a sell rating on Domino's Pizza Enterprises Ltd (ASX: DMP) shares. It explains:

We continue to prefer TWE (Buy) and BRG (Neutral) over A2M (Sell) and DMP (Sell) on a focus on brand and innovation including for TWE – 19 Crimes rebranding, One by Penfolds and Multi-Country of Origin Launch, Matua and Frank Family scaling; and for BRG – Barista Touch Impress, Vertuo Creatista, Joule Turbo Sous Vide and the Breville+ platform. There continues to be strong demand and a penetration run-way for products that solve under-served demand, in less price sensitive categories.

Given global freight cost normalisation and weak AUD, both these companies should benefit from GP margin tail winds and translation benefits. In contrast, we expect A2M to still be dragged by underwhelming demand in China and lower child births, while we expect DMP's Japan business to continue to surprise to the downside given May final relaxation of COVID resulting in lower delivery/take-out demand while cost inflation continued to challenge margins.

All in all, Goldman appears to believe investors should be buying Treasury Wine instead of A2 Milk shares.

Motley Fool contributor James Mickleboro has positions in Domino's Pizza Enterprises and Treasury Wine Estates. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Domino's Pizza Enterprises and Goldman Sachs Group. The Motley Fool Australia has recommended A2 Milk, Domino's Pizza Enterprises, and Treasury Wine Estates. 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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