It's been a pretty great week for Darling Ingredients Inc. (NYSE:DAR) shareholders, with its shares surging 12% to US$22.20 in the week since its latest first-quarter results. It looks like a credible result overall - although revenues of US$853m were what the analysts expected, Darling Ingredients surprised by delivering a (statutory) profit of US$0.51 per share, an impressive 21% above what was forecast. 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Darling Ingredients after the latest results.
Taking into account the latest results, Darling Ingredients' four analysts currently expect revenues in 2020 to be US$3.39b, approximately in line with the last 12 months. Statutory earnings per share are forecast to plunge 42% to US$1.34 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$3.41b and earnings per share (EPS) of US$1.55 in 2020. So there's definitely been a decline in sentiment after the latest results, noting the substantial drop in new EPS forecasts.
The consensus price target held steady at US$31.33, with the analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. 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. There are some variant perceptions on Darling Ingredients, with the most bullish analyst valuing it at US$38.00 and the most bearish at US$24.00 per share. 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.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Darling Ingredients' past performance and to peers in the same industry. It's also worth noting that the years of declining sales look to have come to an end, with the forecast for flat revenues next year. Historically, Darling Ingredients' sales have shrunk approximately 1.2% annually over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 2.3% next year. So it's pretty clear that, although revenues are improving, Darling Ingredients is still expected to grow slower than the industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Darling Ingredients. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. 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 said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Darling Ingredients analysts - going out to 2022, and you can see them free on our platform here.
And what about risks? Every company has them, and we've spotted 3 warning signs for Darling Ingredients (of which 1 shouldn't be ignored!) you should know about.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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