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A week ago, Costa Group Holdings Limited (ASX:CGC) came out with a strong set of yearly numbers that could potentially lead to a re-rate of the stock. The company beat both earnings and revenue forecasts, with revenue of AU$1.2b, some 2.9% above estimates, and statutory earnings per share (EPS) coming in at AU$0.15, 24% ahead of expectations. Following the result, the 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. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the consensus forecast from Costa Group Holdings' ten analysts is for revenues of AU$1.26b in 2021, which would reflect a notable 8.2% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to shoot up 35% to AU$0.20. In the lead-up to this report, the analysts had been modelling revenues of AU$1.24b and earnings per share (EPS) of AU$0.17 in 2021. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the substantial gain in earnings per share expectations following these results.
The analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 21% to AU$4.49. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Costa Group Holdings at AU$5.36 per share, while the most bearish prices it at AU$3.10. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
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. Next year brings more of the same, according to the analysts, with revenue forecast to grow 8.2%, in line with its 7.2% annual growth over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 6.5% per year. So although Costa Group Holdings is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider industry.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Costa Group Holdings following these results. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected 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.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Costa Group Holdings analysts - going out to 2024, and you can see them free on our platform here.
You can also view our analysis of Costa Group Holdings' balance sheet, and whether we think Costa Group Holdings is carrying too much debt, for free on our platform here.
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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