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Digi International Inc. Just Beat Earnings Expectations: Here's What Analysts Think Will Happen Next

Simply Wall St

Digi International Inc. (NASDAQ:DGII) investors will be delighted, with the company turning in some strong numbers with its latest results. It was overall a positive result, with revenues beating expectations by 2.7% to hit US$62m. Digi International also reported a statutory profit of US$0.01, which was an impressive 33% above what analysts had forecast. 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether analysts have changed their mind on Digi International after the latest results.

View our latest analysis for Digi International

NasdaqGS:DGII Past and Future Earnings, February 2nd 2020

Following the latest results, Digi International's eight analysts are now forecasting revenues of US$316.1m in 2020. This would be a sizeable 24% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to bounce 113% to US$0.42. Before this earnings report, analysts had been forecasting revenues of US$316.8m and earnings per share (EPS) of US$0.72 in 2020. So there's definitely been a decline in analyst sentiment after the latest results, noting the pretty serious reduction to new EPS forecasts.

It might be a surprise to learn that the consensus price target was broadly unchanged at US$21.81, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Digi International, with the most bullish analyst valuing it at US$26.00 and the most bearish at US$20.00 per share. Still, with such a tight range of estimates, it suggests analysts have a pretty good idea of what they think the company is worth.

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. It's clear from the latest estimates that Digi International's rate of growth is expected to accelerate meaningfully, with forecast 24% revenue growth noticeably faster than its historical growth of 5.4%p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 3.4% per year. It seems obvious that, while the growth outlook is brighter than the recent past, analysts also expect Digi International to grow faster than the wider market.

The Bottom Line

The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Digi International. Happily, there were no major changes to revenue forecasts, with analysts still expecting the business to grow faster than the wider market. The consensus price target held steady at US$21.81, with the latest estimates not enough to have an impact on analysts' estimated valuations.

Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Digi International going out to 2021, and you can see them free on our platform here..

You can also see our analysis of Digi International's Board and CEO remuneration and experience, and whether company insiders have been buying stock.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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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