On Tuesday the a2 Milk Company Ltd (Australia) (ASX: A2M) share price took a tumble after Deutsche Bank downgraded the dairy company's shares to a hold rating.
According to the note, the broker didn't see enough value in its shares at the current price to maintain its buy rating.
But not everyone feels the same way.
According to a note out Goldman Sachs, its analysts have upgraded a2 Milk's shares to a buy rating with a massive $7.25 price target.
This price target implies a potential return of over 20% from the last close price. Not bad considering its shares are already up 194% since the turn of the year.
Analysts at Goldman think that strong infant formula sales and gross margin expansion will lead to earnings growth 9% ahead of the median consensus estimates for FY 2018.
This is expected to be driven by the higher margin offline channel in China. Goldman estimates that this channel generated circa 8% of sales in FY 2017, but will grow to around 15% in FY 2018.
Should you invest?
Based on Goldman's forecasts a2 Milk's shares are changing hands at 31x forward earnings. This is arguably quite reasonable given its current growth profile.
But at this stage it is unclear whether the broker's forecasts are accurate or not. So for now I would continue to class it as a hold and suggest investors wait for the company to update the market at its mid-November annual general meeting.
