CFDs are complex instruments. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. CFDs are complex instruments. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

A2 Milk share price: why Citi upgraded the stock to buy

We unpack Citibank's latest research on the a2 Milk Company.

For better or worse: broker ratings have the ability to make or break a stock.

Maybe one of the most interesting cases of this comes from Citi’s recently revised take on market darling a2 Milk (ASX: A2M).

The last couple of months have indeed proven a bullish turn for the stock: with the a2 Milk share price rising ~10% since early January.

But here comes the most curious bit. As we wrote in late-January:

‘Sam Teeger has raised Citi’s price target on a2 Milk (ASX: A2M) from $12.30 to $14.85 per share – and upgraded the rating on the stock from sell to neutral.’

That alone marked a large reversal in views for the broker. Last week though, Citi took this reversal one step further: upgrading their rating on a2 Milk to buy from neutral and slapping the IMF stock with a bullish price target of $17.45 per share.

All up, in percentage terms that’s a 41% upward revision. Talk about a view change!

Do you own A2M shares? You can hedge your downside risk by trading CFDs now.

A2 Milk share price: the Citi take

The thrust of this newly minted upgrade though is probably the most interesting part of all this; with Citi analysts contending that the Coronavirus may actually have a positive impact on A2M’s second-half FY20 margins.

Citi had previously held a sell recommendation on the stock based on the thesis that A2M could not sustain its high margins in the face of growing competitive realities.

Returning to the current view, while the broker does indeed acknowledge that public health concerns surrounding the Coronavirus have impacted foot traffic around physical storefronts, Citi suggests that this may be offset by a 'surge in online orders'

As the broker further points out as part of its buy thesis: ‘household stockpiling could result in stronger than expected sales and consumers increasingly staying at home may reduce the need for 2H20 trade and outdoor marketing activities,’ and ‘travel restrictions could help the company reduce its travel expenses.’

Quantifying the impact this would have on the company’s underlying fundamentals, Citi increased their FY20 second half sales estimates by 14% and is currently projecting that A2’s earnings margins will come in at 31% (in H1) and 32% (in FY20).

Other points to consider

A2 Milk (ASX: A2M) is set to report its first-half results on 27 February. In the lead up to these earnings and over the last 5 days, the A2 Milk share price has risen an impressive 6.78%.

Finally, just yesterday, in the wake of Synlait Milk's earnings release and outlook, a2 Milk itself reiterated that ‘its business performance remains strong and it continues to be in compliance with its continuous disclosure obligations.’

Click here now to open an IG Trading Account today.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.