A2 Milk Co Ltd (ASX: A2M) shares are enjoying another strong run today.
Shares in the S&P/ASX 200 Index (ASX: XJO) dairy company closed on Friday trading for $7.92. At the time of writing, shares are changing hands for $7.97 apiece, up 0.57%.
This sees A2 Milk shares up a market-beating 37% so far in 2025.
And that doesn't include A2 Milk's maiden fully franked dividend of 6.6 cents per share, paid out on 4 April.
Management declared that first-ever dividend following the release of the company's half-year results (H1 FY 2025), reported on 17 February.
Those results were also responsible for much of this year's outperformance, with shares in the ASX 200 dairy stock closing up 19.7% on the day. The half-year update also marked the last price-sensitive information released by the company.
Now, here's why Macquarie Group Ltd (ASX: MQG) remains bullish on the outlook for A2 Milk.
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A2 Milk shares tipped to outperform
In a research report released on Friday, Macquarie reiterated its outperform rating on A2 Milk shares.
Stating its bull case, the broker said:
We see key positives in the short-med term include (1) ongoing English Label [EL] channel growth, (2) growth potential from strategic supply chain investments, (3) new product development increasing EL IMF [infant milk formula] offering and access to new categories, (4) strong early stage sales during Year of the Dragon [in China], and (5) scope for additional capital returns post supply chain investment.
As for potential headwinds for the ASX 200 dairy stock, Macquarie said that challenges to its investment case include:
(1) China IMF market backdrop remains tough, (2) competitor activity over 1HCY25 could impact CL growth, (3) recent export data has softened, (4) potential EPS dilution to come from supply chain investment, and (5) potential modest IMF ingredient cost pressure in FY26.
The broker noted that consensus expectations for FY 2025 include 12.6% top-line growth and earnings before interest, taxes, depreciation and amortisation (EBITDA) of $272 million. That's up 16% from FY 2024 and reflects a margin of 14.4%.
"This implies an acceleration of both revenue growth and EBITDA margin over 2H25," Macquarie said.
Connecting the dots, Macquarie maintained its outperform rating.
The broker said:
While there are a number of uncertainties and potential outcomes from key catalysts including the FY25 result and supply chain investment, key drivers of the short-med term outlook including EL channel growth and early stage success remain supportive.
Macquarie has a 12-month price target of $8.30 on A2 Milk shares. That represents a potential upside of 4% from current levels, not including any upcoming dividends.
