It's been a good week for Cineplex Inc. (TSE:CGX) shareholders, because the company has just released its latest third-quarter results, and the shares gained 7.2% to CA$24.21. Revenues were CA$418m, approximately in line with what analysts expected, although earnings per share (EPS) crushed expectations, coming in at CA$0.21, an impressive 31% ahead of estimates. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. With this in mind, we've gathered the latest forecasts to see what analysts are expecting for next year.
After the latest results, the eight analysts covering Cineplex are now predicting revenues of CA$1.75b in 2020. If met, this would reflect a reasonable 6.1% improvement in sales compared to the last 12 months. Earnings per share are expected to bounce 82% to CA$1.51. Before this earnings report, analysts had been forecasting revenues of CA$1.76b and earnings per share (EPS) of CA$1.67 in 2020. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but analysts did make a minor downgrade to their earnings per share forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at CA$30.40, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Cineplex at CA$35.00 per share, while the most bearish prices it at CA$25.00. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. Next year brings more of the same, according to analysts, with revenue forecast to grow 6.1%, in line with its 5.9% annual growth over the past five years. Juxtapose this against our data, which suggests that other companies (with analyst coverage) in the are forecast to see their revenues grow 6.0% per year. So although Cineplex is expected to maintain its revenue growth rate, it's only growing at about the rate of the wider market.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. They also reconfirmed their revenue estimates, with the company predicted to grow at about the same rate as the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on Cineplex. 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 Cineplex going out to 2022, and you can see them free on our platform here..
You can also see whether Cineplex is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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