4 reasons why Oatly will soar 79% amid a boom in oat milk sales, according to BofA

Oatly in London. Oatly
According to Bank of America, Oatly shares could rise as high as 79% in the wake of a boom of oat milk sales.

Starbucks has doubled its order of Oatly oatmilk to meet customer demand, a statement by the bank on Tuesday said.

According to the note, these are the reasons Oatly is poised for greater gains in the future.

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Oatly's public debut in May was a difficult one, with stock prices trading below the $17 IPO price for much of August.

Supply constraints, which limited Oatly’s ability to meet demand and the ongoing short-selling commentary by Spruce Point Capital could both be responsible for the weakness in shares.

Bank of America believes Oatly is overcoming its supply issues and that Oatly could rise as high as 79% by Thursday's close. After meeting with Oatly's management, the bank reiterated its Buy rating as well as the $32 price target in a Tuesday note.

Bank of America took away four key points from the meeting, which suggests Oatly may be on the right track to increase its production capacity and meet demand better.

These were the four main takeaways:

1. Oatly's primary goal is to increase production and to continue to build capacity for Oat Milk.

Oatly appears to be confident that it can meet its anticipated demand in the second half this year. This is despite having made progress at its Ogden, Utah production plant and its hybrid facility in Singapore. Oatly aims to produce 50 million liters per monthly by the end.

2. There are no signs that the demand for oat milk is slowing.

BofA stated that Starbucks has doubled its order of oatmilk from OTLY due to increased demand and data from Nielsen, with a dollar share of dairy options at 17.5% in the 12 weeks ending July 31st, compared to 11.3% 2020.

3. Oatly's manufacturing process gives it an advantage over its peers and gives it a competitive edge.

The note stated that Oatly was confident it would be able stand out in a crowded marketplace because it doesn't depend on syrups or any other non-natural products to make oat milk like other competitors.

4. Oat milk has many white space options in the future.

BofA stated that Oatly had discussed future white space opportunities, which could involve the production of oat milk products high in protein and antibiotics. Oatly also expanded its product line to include oat-based yogurts, ice creams, and other dairy products.

BofA says Oatly trades at a premium valuation. However, Oatly is expected to gain more drinking milk share as Oatly continues adding margin-accretive capacity to its production.