Investors in Compass Group PLC (LON:CPG) had a good week, as its shares rose 3.1% to close at UK£13.93 following the release of its yearly results. It looks like a pretty bad result, all things considered. Although revenues of UK£20b were in line with analyst predictions, statutory earnings fell badly short, missing estimates by 42% to hit UK£0.08 per share. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Compass Group after the latest results.
Following the latest results, Compass Group's 20 analysts are now forecasting revenues of UK£20.5b in 2021. This would be a reasonable 3.0% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to soar 295% to UK£0.32. Before this earnings report, the analysts had been forecasting revenues of UK£20.7b and earnings per share (EPS) of UK£0.35 in 2021. The analysts seem to have become a little more negative on the business after the latest results, given the minor downgrade to their earnings per share numbers for next year.
It might be a surprise to learn that the consensus price target was broadly unchanged at UK£13.42, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Compass Group at UK£18.00 per share, while the most bearish prices it at UK£7.11. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Compass Group's past performance and to peers in the same industry. We would highlight that Compass Group's revenue growth is expected to slow, with forecast 3.0% increase next year well below the historical 5.4%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 11% next year. Factoring in the forecast slowdown in growth, it seems obvious that Compass Group is also expected to grow slower than other industry participants.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Compass Group. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Compass Group's revenues are expected to perform worse than the wider industry. The consensus price target held steady at UK£13.42, with the latest estimates not enough to have an impact on their price targets.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Compass Group going out to 2025, and you can see them free on our platform here.
It is also worth noting that we have found 4 warning signs for Compass Group that you need to take into consideration.
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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