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Earnings Report: Servcorp Limited Missed Revenue Estimates By 7.7%

·4 min read

It's been a good week for Servcorp Limited (ASX:SRV) shareholders, because the company has just released its latest yearly results, and the shares gained 5.9% to AU$3.60. Revenues came in 7.7% below expectations, at AU$272m. Statutory earnings per share were relatively better off, with a per-share profit of AU$0.29 being roughly in line with analyst estimates. 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Servcorp after the latest results.

View our latest analysis for Servcorp

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Taking into account the latest results, the consensus forecast from Servcorp's three analysts is for revenues of AU$294.4m in 2023, which would reflect a meaningful 8.2% improvement in sales compared to the last 12 months. Per-share earnings are expected to climb 17% to AU$0.34. In the lead-up to this report, the analysts had been modelling revenues of AU$317.7m and earnings per share (EPS) of AU$0.34 in 2023. The consensus seems maybe a little more pessimistic, trimming their revenue forecasts after the latest results even though there was no change to its EPS estimates.

The average price target was steady at AU$4.84even though revenue estimates declined; likely suggesting the analysts place a higher value on earnings. 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. There are some variant perceptions on Servcorp, with the most bullish analyst valuing it at AU$5.70 and the most bearish at AU$4.33 per share. This is a very narrow spread of estimates, implying either that Servcorp is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

Of course, another way to look at these forecasts is to place them into context against the industry itself. One thing stands out from these estimates, which is that Servcorp is forecast to grow faster in the future than it has in the past, with revenues expected to display 8.2% annualised growth until the end of 2023. If achieved, this would be a much better result than the 3.1% annual decline 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 revenue grow 9.4% per year. So while Servcorp's revenues are expected to improve, it seems that it is expected to grow at about the same rate as the overall industry.

The Bottom Line

The most obvious conclusion is that there's been no major change in the business' prospects in recent times, with the analysts holding their earnings forecasts steady, in line with previous estimates. Sadly, they also downgraded their sales forecasts, but the business is still expected to grow at roughly the same rate as the industry itself. Even so, earnings are more important to the intrinsic value of the business. 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.

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 forecasts for Servcorp going out to 2025, and you can see them free on our platform here.

Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Servcorp that you should be aware of.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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