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Last week, you might have seen that Covanta Holding Corporation (NYSE:CVA) released its annual result to the market. The early response was not positive, with shares down 6.6% to US$14.28 in the past week. Revenues of US$1.9b arrived in line with expectations, although statutory losses per share were US$0.21, an impressive 24% smaller than what broker models predicted. 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. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
After the latest results, the six analysts covering Covanta Holding are now predicting revenues of US$1.98b in 2021. If met, this would reflect a satisfactory 4.2% improvement in sales compared to the last 12 months. Statutory losses are forecast to balloon 97% to US$0.0053 per share. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$1.96b and earnings per share (EPS) of US$0.049 in 2021. While the analysts have made no real change to their revenue estimates, we can see that the consensus is now modelling a loss next year - a clear dip in sentiment compared to the previous outlook of a profit.
Despite expectations of heavier losses next year,the analysts have lifted their price target 6.4% to US$15.33, perhaps implying these losses are not expected to be recurring over the long term. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Covanta Holding at US$18.00 per share, while the most bearish prices it at US$10.50. 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 we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's clear from the latest estimates that Covanta Holding's rate of growth is expected to accelerate meaningfully, with the forecast 4.2% revenue growth noticeably faster than its historical growth of 3.2%p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to see revenue growth of 6.7% next year. So it's clear that despite the acceleration in growth, Covanta Holding is expected to grow meaningfully slower than the industry average.
The Bottom Line
The biggest low-light for us was that the forecasts for Covanta Holding dropped from profits to a loss next year. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Covanta Holding's revenues are expected to perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
With that in mind, we wouldn't be too quick to come to a conclusion on Covanta Holding. Long-term earnings power is much more important than next year's profits. We have forecasts for Covanta Holding going out to 2025, and you can see them free on our platform here.
You should always think about risks though. Case in point, we've spotted 2 warning signs for Covanta Holding you should be aware of.
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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