Grafton Group plc (LON:GFTU) last week reported its latest annual results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. The result was positive overall - although revenues of UK£2.3b were in line with what the analysts predicted, Grafton Group surprised by delivering a statutory profit of UK£0.89 per share, modestly greater than expected. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Following last week's earnings report, Grafton Group's nine analysts are forecasting 2023 revenues to be UK£2.28b, approximately in line with the last 12 months. Statutory earnings per share are expected to dive 32% to UK£0.64 in the same period. In the lead-up to this report, the analysts had been modelling revenues of UK£2.24b and earnings per share (EPS) of UK£0.62 in 2023. So the consensus seems to have become somewhat more optimistic on Grafton Group's earnings potential following these results.
The consensus price target was unchanged at UK£10.75, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Grafton Group analyst has a price target of UK£13.00 per share, while the most pessimistic values it at UK£9.50. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. One thing that stands out from these estimates is that shrinking revenues are expected to moderate over the period ending 2023 compared to the historical decline of 6.4% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 4.9% per year. So it's pretty clear that, while it does have declining revenues, the analysts also expect Grafton Group to suffer worse than the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Grafton Group's earnings potential next year. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Grafton Group's revenues are expected to perform worse than the wider industry. The consensus price target held steady at UK£10.75, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn't be too quick to come to a conclusion on Grafton Group. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Grafton Group going out to 2025, and you can see them free on our platform here..
You still need to take note of risks, for example - Grafton Group has 1 warning sign we think you should be aware of.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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