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Imperial Oil Limited (TSE:IMO) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's statutory forecasts. The analysts have sharply increased their revenue numbers, with a view that Imperial Oil will make substantially more sales than they'd previously expected. The stock price has risen 5.4% to CA$64.68 over the past week, suggesting investors are becoming more optimistic. Could this big upgrade push the stock even higher?
Following the upgrade, the current consensus from Imperial Oil's five analysts is for revenues of CA$55b in 2022 which - if met - would reflect a substantial 27% increase on its sales over the past 12 months. Statutory earnings per share are presumed to surge 49% to CA$7.26. Prior to this update, the analysts had been forecasting revenues of CA$49b and earnings per share (EPS) of CA$7.41 in 2022. While revenue forecasts have increased, the analysts if anything seem a little more pessimistic, given the minor downgrade to earnings per share estimates in this update.
There's been no major changes to analyst price target of CA$69.68, suggesting that the impact of higher forecast sales and lower earnings won't result in a meaningful change to the business' valuation. 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. Currently, the most bullish analyst values Imperial Oil at CA$81.00 per share, while the most bearish prices it at CA$56.00. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
Of course, another way to look at these forecasts is to place them into context against the industry itself. It's clear from the latest estimates that Imperial Oil's rate of growth is expected to accelerate meaningfully, with the forecast 38% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 2.6% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 5.3% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Imperial Oil is expected to grow much faster than its industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Fortunately, analysts also upgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider market. Seeing the dramatic upgrade to this year's forecasts, it might be time to take another look at Imperial Oil.
Better yet, our automated discounted cash flow calculation (DCF) suggests Imperial Oil could be moderately undervalued. You can learn more about our valuation methodology on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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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.