A2 Milk Company Ltd (ASX: A2M) shares have been racing higher this week.
The catalyst for this has been the release of the infant formula company's full year results.
Let's see what Macquarie Group Ltd (ASX: MQG) is saying about the results.
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What did Macquarie say?
Macquarie was impressed with the company's performance during the second half of FY 2025 and believes it could mean there is upside risk to estimates in FY 2026. It said:
Upside risk to FY26 revenue outlook: A2M saw accelerated revenue growth in 2H25 to 13.3% y/y (ex MVM) including record China IMF share at 8.0% (30bp h/h). Annualising 2H sales gives ~5% FY26 y/y growth, making 7-9% guidance seem very deliverable. A2M will continue to benefit from key IMF trends including (1) EL share of market lifting where A2M over-indexes, (2) a1-free category growing faster than market, (3) category premiumisation, and (4) consolidation to top-5 players. Execution wise, A2M saw strong share exit rates setting up for growth, while Genesis can be incremental to volume and EL ASP.
And while the company's supply chain plans require "a bit of trust", it feels that this has been "earned in recent years." Macquarie adds:
A2M are spending a net ~$400m on supply chain to capture vertical manufacturing margin and allow for 2-3 additional CL registrations. Management noted a ROIC >= WACC (10%) in FY29-30 which implies ~ $40m of NPAT, predicated on ~$40-50m of manufacturing margin and ~$30m of incremental CL EBITDA on additional revenue. It's impossible to unpick the full counterfactual including what was already within consensus, and with near-term EBITDA/EPS dilution the med-long term de-risking/ benefits need to be valued.
A2 Milk shares valuation
According to the note, the broker remains bullish on A2 Milk and its shares.
However, due to rallying strongly yesterday and today, there is now only minor upside potential for buyers at current levels.
Macquarie has retained its outperform rating with an improved price target of $8.70 (from $8.30).
Commenting on its recommendation, it said:
We think A2M had prepared the market for EPS headwinds from supply chain which de-risks the med-long term and should see accelerated growth in FY27+ (Macq 5-yr EPS CAGR +2.5pp post update). While this lifts current PER, execution is strong, upside risk to FY26 and strong B/S.
Valuation: TP to A$8.70 (from A$8.30) with 28x PER applied to EPS ex estimated Pokeno drag given long term nature of investment. Previously used 29x on EPS including MVM losses which were materially reduced. Catalysts: Share gains, performance of new product launches, Pokeno progress including re-skinning existing CLs, birth rate, special dividend.
