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Earnings Miss: CareTech Holdings PLC Missed EPS By 16% And Analysts Are Revising Their Forecasts

Simply Wall St

It's been a good week for CareTech Holdings PLC (LON:CTH) shareholders, because the company has just released its latest interim results, and the shares gained 8.1% to UK£4.16. It was not a great result overall. Although revenues beat expectations, hitting UK£209m, statutory earnings missed analyst forecasts by 16%, coming in at just UK£0.095 per share. 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.

See our latest analysis for CareTech Holdings

AIM:CTH Past and Future Earnings June 20th 2020

Taking into account the latest results, the current consensus from CareTech Holdings' four analysts is for revenues of UK£422.6m in 2020, which would reflect a credible 2.8% increase on its sales over the past 12 months. Statutory earnings per share are predicted to soar 22% to UK£0.27. Before this earnings report, the analysts had been forecasting revenues of UK£423.0m and earnings per share (EPS) of UK£0.30 in 2020. The analysts seem to have become a little more negative on the business after the latest results, given the minor downgrade to their earnings per share numbers for next year.

The average price target fell 5.4% to UK£5.28, with reduced earnings forecasts clearly tied to a lower valuation estimate. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic CareTech Holdings analyst has a price target of UK£5.81 per share, while the most pessimistic values it at UK£4.30. Still, with such a tight range of estimates, it suggeststhe analysts have a pretty good idea of what they think the company is worth.

Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that CareTech Holdings' revenue growth is expected to slow, with forecast 2.8% increase next year well below the historical 27%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 6.3% next year. Factoring in the forecast slowdown in growth, it seems obvious that CareTech Holdings is also expected to grow slower than other industry participants.

The Bottom Line

The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for CareTech Holdings. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that CareTech Holdings' revenues are expected to perform worse than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple CareTech Holdings analysts - going out to 2024, 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 4 warning signs with CareTech Holdings (at least 1 which makes us a bit uncomfortable) , and understanding these should be part of your investment process.

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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. Thank you for reading.