It's been a mediocre week for Diversified Royalty Corp. (TSE:DIV) shareholders, with the stock dropping 19% to CA$2.39 in the week since its latest yearly results. It looks like the results were a bit of a negative overall. While revenues of CA$30m were in line with analyst predictions, statutory earnings were less than expected, missing estimates by 6.2% to hit CA$0.13 per share. This is an important time for investors, as they can track a company's performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. With this in mind, we've gathered the latest statutory forecasts to see what analysts are expecting for next year.
Following the latest results, Diversified Royalty's three analysts are now forecasting revenues of CA$39.0m in 2020. This would be a major 28% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to surge 46% to CA$0.19. Yet prior to the latest earnings, analysts had been forecasting revenues of CA$41.8m and earnings per share (EPS) of CA$0.20 in 2020. Analysts are less bullish than they were before these results, given the reduced revenue forecasts and the minor downgrade to earnings per share expectations.
Despite the cuts to forecast earnings, there was no real change to the CA$4.22 price target, showing that analysts don't think the changes have a meaningful impact on the stock's intrinsic value. 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 Diversified Royalty at CA$4.75 per share, while the most bearish prices it at CA$3.75. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that analysts have a clear view on its prospects.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. It's clear from the latest estimates that Diversified Royalty's rate of growth is expected to accelerate meaningfully, with forecast 28% revenue growth noticeably faster than its historical growth of 17%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 4.9% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Diversified Royalty is expected to grow much faster than its market.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Regrettably, they also downgraded their revenue estimates, but the latest forecasts still imply the business will grow faster than the wider market. The consensus price target held steady at CA$4.22, 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. We have forecasts for Diversified Royalty going out to 2024, and you can see them free on our platform here.
You can also see whether Diversified Royalty is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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