Earnings Miss: Xero Limited Missed EPS By 65% And Analysts Are Revising Their Forecasts
It's been a sad week for Xero Limited (ASX:XRO), who've watched their investment drop 16% to AU$113 in the week since the company reported its yearly result. It looks like a pretty bad result, all things considered. Although revenues of NZ$849m were in line with analyst predictions, statutory earnings fell badly short, missing estimates by 65% to hit NZ$0.14 per share. 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. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Check out our latest analysis for Xero
Following the latest results, Xero's eleven analysts are now forecasting revenues of NZ$1.07b in 2022. This would be a huge 26% improvement in sales compared to the last 12 months. Per-share earnings are expected to leap 390% to NZ$0.68. Before this earnings report, the analysts had been forecasting revenues of NZ$1.05b and earnings per share (EPS) of NZ$0.64 in 2022. 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.
Despite these upgrades,the analysts have not made any major changes to their price target of NZ$127, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. 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 Xero analyst has a price target of NZ$152 per share, while the most pessimistic values it at NZ$45.97. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We can infer from the latest estimates that forecasts expect a continuation of Xero'shistorical trends, as the 26% annualised revenue growth to the end of 2022 is roughly in line with the 27% annual revenue growth over the past five years. Compare this with the broader industry, which analyst estimates (in aggregate) suggest will see revenues grow 17% annually. So although Xero is expected to maintain its revenue growth rate, it's definitely expected to grow faster 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 Xero's earnings potential next year. Happily, they also upgraded their revenue estimates, and are forecasting revenues to grow faster 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.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates - from multiple Xero analysts - going out to 2026, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 4 warning signs for Xero (1 can't be ignored!) that you should be aware of.
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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