Since The a2 Milk Company Limited (NZSE:ATM) released its earnings in June 2018, analysts seem fairly confident, with earnings expected to grow by 38.3% in the upcoming year, though this is comparatively lower than the historical 5-year average earnings growth of 60.4%. By 2019, we can expect a2 Milk’s bottom line to reach NZ$270.7m, a jump from the current trailing-twelve-month NZ$195.7m. I will provide a brief commentary around the figures and analyst expectations in the near term. For those keen to understand more about other aspects of the company, you can research its fundamentals here.
How is a2 Milk going to perform in the near future?
The 10 analysts covering ATM view its longer term outlook with a positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To understand the overall trajectory of ATM’s earnings growth over these next fews years, I’ve fitted a line through these analyst earnings forecast to determine an annual growth rate from the slope.
From the current net income level of NZ$195.7m and the final forecast of NZ$417.9m by 2021, the annual rate of growth for ATM’s earnings is 19.4%. This leads to an EPS of NZ$0.57 in the final year of projections relative to the current EPS of NZ$0.27. The main reason for growth is a result of reduction in costs rather than purely top-line expansion as earnings is increasing at a faster rate. With a current profit margin of 21.2%, this movement will result in a margin of 22.9% by 2021.
Future outlook is only one aspect when you’re building an investment case for a stock. For a2 Milk, there are three fundamental aspects you should look at:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is a2 Milk worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether a2 Milk is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of a2 Milk? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.