Associated British Foods plc’s (LON:ABF) most recent earnings update in September 2018 revealed that the company faced a substantial headwind with earnings falling by -16%. Below, I’ve laid out key numbers on how market analysts view Associated British Foods’s earnings growth trajectory over the next few years and whether the future looks brighter. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Analysts’ expectations for the upcoming year seems rather subdued, with earnings increasing by a single digit 5.6%. The growth outlook in the following year seems much more optimistic with rates reaching double digit 16% compared to today’s earnings, and finally hitting UK£1.3b by 2021.
While it is informative knowing the growth rate year by year relative to today’s figure, it may be more insightful gauging the rate at which the company is moving every year, on average. The benefit of this technique is that we can get a better picture of the direction of Associated British Foods’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I’ve appended a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 7.1%. This means, we can expect Associated British Foods will grow its earnings by 7.1% every year for the next couple of years.
For Associated British Foods, there are three fundamental factors you should further research:
- 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.
- Valuation: What is ABF 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 ABF is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of ABF? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.