Analysts Have Been Trimming Their Sodexo S.A. (EPA:SW) Price Target After Its Latest Report
The investors in Sodexo S.A.'s (EPA:SW) will be rubbing their hands together with glee today, after the share price leapt 22% to €71.60 in the week following its half-year results. Results were roughly in line with estimates, with revenues of €12b and statutory earnings per share of €4.50. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Check out our latest analysis for Sodexo
Taking into account the latest results, the current consensus, from the 19 analysts covering Sodexo, is for revenues of €20.7b in 2020, which would reflect an uncomfortable 8.4% reduction in Sodexo's sales over the past 12 months. Statutory earnings per share are forecast to crater 33% to €3.10 in the same period. In the lead-up to this report, the analysts had been modelling revenues of €20.9b and earnings per share (EPS) of €3.59 in 2020. So there's definitely been a decline in sentiment after the latest results, noting the real cut to new EPS forecasts.
It might be a surprise to learn that the consensus price target fell 5.4% to €80.27, with the analysts clearly linking lower forecast earnings to the performance of the stock price. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Sodexo at €117 per share, while the most bearish prices it at €57.00. 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.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 8.4%, a significant reduction from annual growth of 2.5% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 3.4% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Sodexo is expected to lag 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. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Sodexo's revenues are expected to perform worse than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Sodexo's future valuation.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Sodexo analysts - going out to 2024, and you can see them free on our platform here.
Before you take the next step you should know about the 2 warning signs for Sodexo that we have uncovered.
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