It's been a mediocre week for The Sage Group plc (LON:SGE) shareholders, with the stock dropping 14% to UK£5.80 in the week since its latest full-year results. Sage Group reported in line with analyst predictions, delivering revenues of UK£1.9b and statutory earnings per share of UK£0.28, suggesting the business is executing well and in line with its plan. 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've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Taking into account the latest results, Sage Group's 18 analysts currently expect revenues in 2021 to be UK£1.90b, approximately in line with the last 12 months. Statutory earnings per share are expected to crater 20% to UK£0.23 in the same period. Before this earnings report, the analysts had been forecasting revenues of UK£1.91b and earnings per share (EPS) of UK£0.25 in 2021. So there's definitely been a decline in sentiment after the latest results, noting the real cut to new EPS forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at UK£6.67, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Sage Group, with the most bullish analyst valuing it at UK£11.10 and the most bearish at UK£5.20 per share. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. These estimates imply that sales are expected to slow, with a forecast revenue decline of 0.1%, a significant reduction from annual growth of 7.4% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 7.1% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Sage Group is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Sage Group's revenues are expected to perform worse than the wider industry. The consensus price target held steady at UK£6.67, with the latest estimates not enough to have an impact on their price targets.
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 forecasts for Sage Group going out to 2025, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 5 warning signs for Sage Group (1 shouldn'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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