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As you might know, Capital Southwest Corporation (NASDAQ:CSWC) just kicked off its latest quarterly results with some very strong numbers. Capital Southwest delivered a significant beat to revenue and earnings per share (EPS) expectations, with sales hitting US$19m, some 14% above indicated. Statutory EPS were US$0.80, an impressive 98% ahead of forecasts. 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. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
After the latest results, the five analysts covering Capital Southwest are now predicting revenues of US$75.0m in 2022. If met, this would reflect a decent 14% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to surge 120% to US$1.85. In the lead-up to this report, the analysts had been modelling revenues of US$70.2m and earnings per share (EPS) of US$1.71 in 2022. It looks like there's been a modest increase in sentiment following the latest results, withthe analysts becoming a bit more optimistic in their predictions for both revenues and earnings.
With these upgrades, we're not surprised to see that the analysts have lifted their price target 15% to US$19.50per share. 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 Capital Southwest analyst has a price target of US$22.00 per share, while the most pessimistic values it at US$16.00. 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.
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. It's pretty clear that there is an expectation that Capital Southwest's revenue growth will slow down substantially, with revenues next year expected to grow 14%, compared to a historical growth rate of 32% over the past five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 6.3% next year. So it's pretty clear that, while Capital Southwest's revenue growth is expected to slow, it's still expected to grow faster than the industry itself.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Capital Southwest's earnings potential next year. Happily, they also upgraded their revenue estimates, and are forecasting revenues to grow faster than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that in mind, we wouldn't be too quick to come to a conclusion on Capital Southwest. 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 Capital Southwest going out to 2023, and you can see them free on our platform here..
You should always think about risks though. Case in point, we've spotted 6 warning signs for Capital Southwest you should be aware of, and 3 of them can't be ignored.
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. 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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