a2 Milk has downgraded its FY21 earnings guidance by circa -60%. Morgan Stanley highlights sales in April have been well below plan and the company's inventory review revealed higher than expected inventory and aging issues.

The China label business is also slowing down, notes Morgan Stanley, with revenue growing by only 5% in the third quarter. The broker notes since the August result, FY21 earnings guidance is down circa -77%, and a new CEO has not helped investor confidence.

The broker highlights while the board is currently reviewing potential buybacks to help provide some valuation support, the slowdown in China label products remains a concern.

 Equal-weight with the target reduced to $7.10 from $11. Industry view is Cautious.

Sector: Food, Beverage & Tobacco.

Target price is $7.10.Current Price is $5.79. Difference: $1.31 - (brackets indicate current price is over target). If A2M meets the Morgan Stanley target it will return approximately 18% (excluding dividends, fees and charges - negative figures indicate an expected loss).

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