Investors in Evoqua Water Technologies Corp. (NYSE:AQUA) had a good week, as its shares rose 2.8% to close at US$18.49 following the release of its full-year results. Revenues came in at US$1.4b, in line with estimates, while Evoqua Water Technologies reported a loss of US$0.08 per share, well short of prior analyst forecasts for a profit. This is an important time for investors, as they can track a company's performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent forecasts to see whether analysts have changed their earnings models, following these results.
Following last week's earnings report, Evoqua Water Technologies's seven analysts are forecasting 2020 revenues to be US$1.44b, approximately in line with the last 12 months. Earnings are expected to improve, with Evoqua Water Technologies forecast to report a profit of US$0.37 per share. Yet prior to the latest earnings, analysts had been forecasting revenues of US$1.48b and earnings per share (EPS) of US$0.38 in 2020. So it looks like analysts have become a bit less optimistic after the latest results announcement, with revenues expected to fall even as the company is expected to maintain EPS.
Analysts have also increased their price target 7.6% to US$16.90, clearly signalling that lower revenue forecasts next year are not expected to have a material impact on Evoqua Water Technologies's valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Evoqua Water Technologies at US$20.00 per share, while the most bearish prices it at US$11.00. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. These estimates imply that sales are expected to slow, with a forecast revenue decline of 0.6% a significant reduction from annual growth of 6.4% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 2.2% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - analysts also expect Evoqua Water Technologies to grow slower than the wider market.
The Bottom Line
The most important thing to take away is that there's been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. Still, earnings are more important to the intrinsic value of the business. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.
With that in mind, we wouldn't be too quick to come to a conclusion on Evoqua Water Technologies. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Evoqua Water Technologies going out to 2023, and you can see them free on our platform here..
You can also see whether Evoqua Water Technologies is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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