Energy Recovery, Inc. (NASDAQ:ERII) just released its quarterly report and things are looking bullish. The company beat both earnings and revenue forecasts, with revenue of US$27m, some 3.7% above estimates, and statutory earnings per share (EPS) coming in at US$0.10, 150% ahead of expectations. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Energy Recovery after the latest results.
Taking into account the latest results, the four analysts covering Energy Recovery provided consensus estimates of US$97.4m revenue in 2021, which would reflect a definite 13% decline on its sales over the past 12 months. Statutory earnings per share are expected to tumble 65% to US$0.14 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$96.9m and earnings per share (EPS) of US$0.13 in 2021. Although the revenue estimates have not really changed, we can see there's been a nice increase in earnings per share expectations, suggesting that the analysts have become more bullish after the latest result.
There's been no major changes to the consensus price target of US$10.88, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock's valuation. 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 Energy Recovery at US$12.00 per share, while the most bearish prices it at US$9.50. This is a very narrow spread of estimates, implying either that Energy Recovery is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 13%, a significant reduction from annual growth of 17% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 7.4% next year. It's pretty clear that Energy Recovery's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Energy Recovery's earnings potential next year. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Energy Recovery's revenues are expected to 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 in mind, we wouldn't be too quick to come to a conclusion on Energy Recovery. Long-term earnings power is much more important than next year's profits. We have forecasts for Energy Recovery going out to 2022, and you can see them free on our platform here.
It is also worth noting that we have found 2 warning signs for Energy Recovery that you need to take into consideration.
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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