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A week ago, RPM International Inc. (NYSE:RPM) came out with a strong set of quarterly numbers that could potentially lead to a re-rate of the stock. RPM International beat earnings, with revenues hitting US$1.6b, ahead of expectations, and statutory earnings per share outperforming analyst reckonings by a solid 14%. 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. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the consensus forecast from RPM International's eleven analysts is for revenues of US$5.84b in 2021, which would reflect a modest 3.6% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to surge 42% to US$4.16. In the lead-up to this report, the analysts had been modelling revenues of US$5.64b and earnings per share (EPS) of US$3.80 in 2021. So there seems to have been a moderate uplift in sentiment following the latest results, given the upgrades to both revenue and earnings per share forecasts for next year.
With these upgrades, we're not surprised to see that the analysts have lifted their price target 6.0% to US$96.36per share. 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. There are some variant perceptions on RPM International, with the most bullish analyst valuing it at US$109 and the most bearish at US$89.00 per share. With such a narrow range of valuations, the analysts apparently share similar views on what they think the business is worth.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We can infer from the latest estimates that forecasts expect a continuation of RPM International'shistorical trends, as next year's 3.6% revenue growth is roughly in line with 4.3% annual revenue growth over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 5.5% per year. So although RPM International is expected to maintain its revenue growth rate, it's forecast to grow slower than the wider industry.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards RPM International following these results. They also upgraded their revenue estimates for next year, even though sales are expected to grow slower than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that in mind, we wouldn't be too quick to come to a conclusion on RPM International. Long-term earnings power is much more important than next year's profits. We have forecasts for RPM International going out to 2025, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with RPM International , and understanding them should be part of your investment process.
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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