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Associated British Foods plc (LON:ABF): Is It A Smart Long Term Opportunity?

Frank Brewer

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After Associated British Foods plc’s (LON:ABF) earnings announcement in September 2018, the consensus outlook from analysts appear somewhat bearish, with earnings expected to grow by 5.7% in the upcoming year relative to the higher past 5-year average growth rate of 14%. Presently, with latest-twelve-month earnings at UK£1.0b, we should see this growing to UK£1.1b by 2020. Below is a brief commentary around Associated British Foods’s earnings outlook going forward, which may give you a sense of market sentiment for the company. For those keen to understand more about other aspects of the company, you can research its fundamentals here.

View our latest analysis for Associated British Foods

What can we expect from Associated British Foods in the longer term?

The longer term expectations from the 19 analysts of ABF is tilted towards the positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To reduce the year-on-year volatility of analyst earnings forecast, I’ve inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.

LSE:ABF Past and Future Earnings, February 21st 2019

From the current net income level of UK£1.0b and the final forecast of UK£1.3b by 2022, the annual rate of growth for ABF’s earnings is 6.6%. EPS reaches £1.61 in the final year of forecast compared to the current £1.27 EPS today. In 2022, ABF’s profit margin will have expanded from 6.5% to 7.3%.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Associated British Foods, I’ve put together three fundamental aspects 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 Associated British Foods 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 Associated British Foods is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Associated British Foods? 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.