Investors in Epiroc AB (publ) (STO:EPI A) had a good week, as its shares rose 5.5% to close at kr101 following the release of its quarterly results. The result was positive overall - although revenues of kr9.1b were in line with what the analysts predicted, Epiroc surprised by delivering a statutory profit of kr1.18 per share, modestly greater than expected. 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. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, the 15 analysts covering Epiroc provided consensus estimates of kr35.8b revenue in 2020, which would reflect an uneasy 11% decline on its sales over the past 12 months. Statutory earnings per share are expected to descend 15% to kr4.18 in the same period. Before this earnings report, the analysts had been forecasting revenues of kr35.6b and earnings per share (EPS) of kr4.07 in 2020. So the consensus seems to have become somewhat more optimistic on Epiroc's earnings potential following these results.
There's been no major changes to the consensus price target of kr98.81, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock's valuation. 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. Currently, the most bullish analyst values Epiroc at kr116 per share, while the most bearish prices it at kr80.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Epiroc's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 11%, a significant reduction from annual growth of 0.9% over the last year. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 3.9% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Epiroc is expected to lag 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 Epiroc's earnings potential next year. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse 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.
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 Epiroc going out to 2022, 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 1 warning sign with Epiroc , and understanding it should be part of your investment process.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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