A2 Milk Company Ltd (ASX: A2M) shares were under significant pressure yesterday.
The infant formula company's shares ended the session 13% lower at $8.04 following the release of a trading update.
Is this a buying opportunity for investors? Let's see what Bell Potter is saying about it.
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What is the broker saying?
Bell Potter was disappointed with the downgrade and has concerns that the issues could remain in FY 2027. It said:
The downgrade to revenue expectations has been driven by lower availability of product, driven by increased testing (following competitor ARA contamination recalls) delaying product release times (SM1 cited an 8-10wk delay at its recent 1H26 result) and resolved supply chain issues at SM1's Dunsandel facility.
The margin downgrade is less clear, with higher freight and testing costs the major drivers. Essentially, the upper end of revised revenue guidance is unchanged from pervious guidance, but EBITDA margins expectations are materially downgraded and we suspect these higher supply chain costs are likely to persist into 1Q27e
The broker also highlights that the lack of stock in China could impact customer acquisition and customer retention in the key market. It adds:
Product availability in China is an issue for Apr-May'26, with likely out-of-stocks, which has the scope limit new customer acquisition and retain existing customers.
Should you buy A2 Milk shares?
In response to the update, the broker has retained its hold rating with a reduced price target of $8.35 (from $9.55).
Based on its current share price of $7.99, this implies modest potential upside of 4.5% for investors over the next 12 months.
However, it also expects a dividend yield of approximately 3% over the period, which boosts the total potential return to around 7.5%.
Commenting on changes to its estimates and the retention of its hold recommendation, Bell Potter said:
NPAT changes are -13% in FY26e, -9% in FY27e and unchanged in FY28e. Our forecasts assume that elevated supply chain costs remain through 1Q27e (elevated freight and testing costs imbedded in COGS). Our target price falls to A$8.35/sh (prev. A$9.55/sh) reflecting earnings changes and movements in the AUDNZD cross rate.
Hold, TP A$8.35/sh. While some of the issues are likely to be temporary in nature (such as elevated air freight) they may well persist into 1Q27e as in-market inventory levels are restored. The deterioration in FY26e margin expectations, when supply chain issues were flagged by SM1 in Feb'26 and are now below Aug'25 guidance levels on a higher revenue base is somewhat concerning, given returning ingredient COG inflation.
