Shares in A2 Milk Company Ltd (ASX: A2M) were among the best performers in the S&P/ASX 200 Index (ASX: XJO) on Wednesday after a broker upgraded the rating on the stock and boosted the price target by a whopping 40%.
As reported by The Australian, Chinese broking house CLSA upgraded the milk products company from hold to outperform, and boosted the price target to $10.20.
The company's stock surged 5.21% following the upgrade to $9.08, to be the fifth-best performer on the ASX 200 for the day.
Shares in A2 Milk are close to testing their 12-month highs, having traded as low as $4.73 in the past year before bouncing to $9.78 following the release of the company's full-year results in August.
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Strong results putting a floor under shares
The company posted a 13.5% increase in full-year revenue at the time to NZ$1.9 billion, and a 21.1% increase in net profit to NZ$202.9 million.
The company has not updated its outlook since the release of its results, but said at the time that it would continue to execute its growth strategy, "with an emphasis on capturing its full potential in the China market, whilst expanding into adjacent categories and new markets".
A2 Milk expects to grow its revenues in the high single digits compared with FY25, and to report a net profit similar to the last financial year.
Acquisitions to drive growth plans
In August, the company also announced it had bought a nutritional manufacturing facility in Pokeno, New Zealand, which produces two infant milk formula products for the China market.
Managing Director David Bortolussi said at the time that it was a significant step forward in the company's supply chain transformation strategy.
With full ownership we gain strategic control over two China label registrations, which we plan to relaunch under the a2 Milk company brand within 12-18 months, with access to a potential third registration slot over time (all subject to China regulatory approvals). The Pokeno facility is world-class with a proven track record of producing high-quality infant milk formula including our English label products, a2 Gentle Gold and a2 Genesis.
Also this week, two directors declared they had bought shares on market, with Kathryn Mitchell buying 6000 shares and Pei-yu Yu also buying 6000.
In late 2024, A2 Milk established a dividend policy for the first time, and intends to pay out between 60% and 80% of its net profits as dividends going forward. This year, it paid dividends of NZ8.5 cents in April and NZ11.5 cents in October.
The company was valued at $6.59 billion at the close of trade on Tuesday. It will hold its annual general meeting on November 20.
