A2 Milk share price sinks to multi-year low following broker downgrade

This broker is no longer bullish on the struggling infant formula company…

| More on:
A young woman with tattoos puts both thumbs down and scrunches her face.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • A2 Milk shares have hit a multi-year low on Monday
  • This morning a formerly bullish broker downgraded the struggling infant formula company's shares
  • Its analysts believe industry data is pointing to some tough times ahead

The A2 Milk Company Ltd (ASX: A2M) share price is sinking on Monday afternoon.

At the time of writing, the struggling infant formula company's shares are down 5% to a multi-year low of $3.99.

This means the A2 Milk share price is now down almost 30% in 2022.

Why is the A2 Milk share price sinking?

While the market is dropping on Monday, the A2 Milk share price is falling more than most after being the subject of a bearish broker note.

According to a note out of Bell Potter, its analysts have downgraded the company's shares to hold rating and slashed the price target on them by 33.5% from $7.15 to $4.75.

While this still implies reasonable upside from where its shares trade today, it isn't enough for a more positive rating from the broker. Particularly given recent industry trends, which Bell Potter believes warrant a more cautious view on the company.

What did the broker say?

Bell Potter revealed that its industry checks paint a worrying picture for A2 Milk, based on historical patterns.

The broker explained:

In recent months there has been an emerging dislocation between volumes entering Australia from NZ and volumes exiting Australia to China in shipment data we monitor. While this dislocation may prove transitory in nature (i.e. lockdown linked), historically this pattern has not been supportive of strong volume growth. The data dislocation warrants a more cautious view on the stock and with our revised FY22-24e NPAT forecasts sitting below consensus, we downgrade our rating from Buy to Hold.

Bell Potter is now expecting profits of NZ$108.6 million in FY 2022, NZ$118.5 million in FY 2023, and NZ$136.2 million in FY 2024.

While heading in the right direction, this is still materially lower than both FY 2019's profit of NZ$287.7 million and FY 2020's profit of NZ$388.1 million.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Broker Notes

Female miner smiling in front of a mining vehicle as the Pilbara Minerals share price rises
Broker Notes

Expert says this ASX All Ords small cap mining stock could rocket 38%

Big upside ahead?

Read more »

Two laughing young women hold shopping bags and ride an escalator up to another level in a Scentre Group shopping centre.
Broker Notes

3 ASX consumer sector shares to buy in July: expert

A leading expert has named its top 3 picks.

Read more »

Man drawing an upward line on a bar graph symbolising a rising share price.
Broker Notes

Broker says WiseTech shares can hit $135

Bell Potter has good things to say about this rebounding tech stock.

Read more »

a man holds a firework sparkler in both hands as a shower of sparkly confetti falls from the sky around him as he smiles and closes his eyes in a celebratory scene.
Broker Notes

Stock market outlook: Macquarie 'ready to party like its 1999'

It may not be too late to invest in the share market according to the broker.

Read more »

A woman wearing dark clothing and sporting a few tattoos and piercings holds a phone and a takeaway coffee cup as she strolls under the Sydney Harbour Bridge which looms in the background.
Broker Notes

The smartest Australian stocks to buy with $400 right now

Let's see why these shares are highly rated by brokers.

Read more »

person with large headphones looking puzzled holding their hand to their chin.
Broker Notes

Does Macquarie prefer Harvey Norman or JB Hi-Fi shares?

Both companies have market-beating long-term track records.

Read more »

A young man sits at his desk with a laptop and documents with a gas heater visible behind him as though he is considering the information in front of him. about the BHP share price
Broker Notes

Leading broker has just downgraded BHP shares. Is it time to sell?

Macquarie sees little upside. But why?

Read more »

A blockchain investor sits at his desk with a laptop computer open and a phone checking information from a booklet in a home office setting.
Broker Notes

Are non-bank lenders a lucrative alternative to the big 4 banks?

The big 4 banks are widely perceived as being fully valued or overvalued.

Read more »