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AB SKF (publ) (STO:SKF B): Earnings Growth Remains Elusive

Simply Wall St

After AB SKF (publ)'s (STO:SKF B) recent earnings announcement in December 2018, it seems that analyst forecasts are fairly bearish, with profits predicted to drop by -20% next year against the past 5-year average growth rate of 24%. Currently with a trailing-twelve-month profit of kr7.3b, the consensus growth rate suggests that earnings will drop to kr5.8b by 2020. I will provide a brief commentary around the figures and analyst expectations in the near term. Investors wanting to learn more about other aspects of the company should research its fundamentals here.

See our latest analysis for AB SKF

How will AB SKF perform in the near future?

The 20 analysts covering SKF B view its longer term outlook with a negative sentiment. Generally, broker analysts tend to make predictions for up to three years given the lack of visibility beyond this point. To get an idea of the overall earnings growth trend for SKF B, I’ve plotted out each year’s earnings expectations and inserted a line of best fit to determine an annual rate of growth from the slope of this line.

OM:SKF B Past and Future Earnings, April 18th 2019

By 2022, SKF B's earnings should reach kr6.2b, from current levels of kr7.3b, resulting in an annual growth rate of -5.6%. This leads to an EPS of SEK13.67 in the final year of projections relative to the current EPS of SEK16. The primary reason for earnings contraction is due to cost growth exceeding top-line growth of 1.0% in the next three years. With this high cost growth, margins is expected to contract from 8.5% to 7.1% by the end of 2022.

Next Steps:

Future outlook is only one aspect when you're building an investment case for a stock. For AB SKF, I've put together three essential factors you should look at:

  1. 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.
  2. Valuation: What is AB SKF 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 AB SKF is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of AB SKF? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.