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Investors in APA Group (ASX:APA) had a good week, as its shares rose 2.1% to close at AU$9.43 following the release of its half-yearly results. Revenues came in 3.9% below expectations, at AU$1.3b. Statutory earnings per share were relatively better off, with a per-share profit of AU$0.27 being roughly in line with analyst estimates. 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on APA Group after the latest results.
Following last week's earnings report, APA Group's eleven analysts are forecasting 2021 revenues to be AU$2.58b, approximately in line with the last 12 months. Statutory earnings per share are predicted to surge 101% to AU$0.22. In the lead-up to this report, the analysts had been modelling revenues of AU$2.54b and earnings per share (EPS) of AU$0.27 in 2021. So there's definitely been a decline in sentiment after the latest results, noting the real cut to new EPS forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at AU$10.72, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic APA Group analyst has a price target of AU$11.94 per share, while the most pessimistic values it at AU$9.50. This is a very narrow spread of estimates, implying either that APA Group is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
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. It's pretty clear that there is an expectation that APA Group's revenue growth will slow down substantially, with revenues next year expected to grow 0.3%, compared to a historical growth rate of 5.1% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 6.4% next year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than APA Group.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for APA Group. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that APA Group's revenues are expected to perform worse than the wider industry. The consensus price target held steady at AU$10.72, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn't be too quick to come to a conclusion on APA Group. Long-term earnings power is much more important than next year's profits. We have forecasts for APA Group going out to 2025, and you can see them free on our platform here.
Before you take the next step you should know about the 4 warning signs for APA Group (2 are a bit unpleasant!) that we have uncovered.
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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