Shareholders of Prada S.p.A. (HKG:1913) will be pleased this week, given that the stock price is up 10% to HK$22.00 following its latest full-year results. It was a credible result overall, with revenues of €3.2b and statutory earnings per share of €0.10 both in line with analyst estimates, showing that Prada is executing in line with expectations. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Taking into account the latest results, the 17 analysts covering Prada provided consensus estimates of €2.95b revenue in 2020, which would reflect a not inconsiderable 8.6% decline on its sales over the past 12 months. Statutory earnings per share are expected to dive 48% to €0.052 in the same period. Before this earnings report, the analysts had been forecasting revenues of €3.28b and earnings per share (EPS) of €0.081 in 2020. It looks like sentiment has declined substantially in the aftermath of these results, with a real cut to revenue estimates and a pretty serious reduction to earnings per share numbers as well.
The analysts made no major changes to their price target of €2.98, suggesting the downgrades are not expected to have a long-term impact on Prada's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Prada analyst has a price target of €3.69 per share, while the most pessimistic values it at €1.72. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Prada's past performance and to peers in the same industry. Over the past five years, revenues have declined around 2.9% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for a 8.6% decline in revenue next year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 14% per year. So it's pretty clear that, while it does have declining revenues, the analysts also expect Prada to suffer worse than the wider industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At Simply Wall St, we have a full range of analyst estimates for Prada going out to 2024, and you can see them free on our platform here..
You should always think about risks though. Case in point, we've spotted 2 warning signs for Prada you should be aware of, and 1 of them is concerning.
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