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Forecast: Analysts Think 3i Group plc's (LON:III) Business Prospects Have Improved Drastically

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3i Group plc (LON:III) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. The consensus statutory numbers for both revenue and earnings per share (EPS) increased, with their view clearly much more bullish on the company's business prospects. The market may be pricing in some blue sky too, with the share price gaining 12% to UK£12.96 in the last 7 days. It will be interesting to see if today's upgrade is enough to propel the stock even higher.

After this upgrade, 3i Group's six analysts are now forecasting revenues of UK£3.2b in 2022. This would be a huge 63% improvement in sales compared to the last 12 months. Per-share earnings are expected to ascend 19% to UK£2.29. Previously, the analysts had been modelling revenues of UK£2.3b and earnings per share (EPS) of UK£1.86 in 2022. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.

See our latest analysis for 3i Group

earnings-and-revenue-growth
earnings-and-revenue-growth

Despite these upgrades, the analysts have not made any major changes to their price target of UK£14.47, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. 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 3i Group at UK£15.10 per share, while the most bearish prices it at UK£13.84. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that the analysts have a clear view on its prospects.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. For example, we noticed that 3i Group's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 63% growth to the end of 2022 on an annualised basis. That is well above its historical decline of 5.0% a year over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 2.3% annually. Not only are 3i Group's revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.

The Bottom Line

The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So 3i Group could be a good candidate for more research.

Analysts are clearly in love with 3i Group at the moment, but before diving in - you should be aware that we've identified some warning flags with the business, such as concerns around earnings quality. You can learn more, and discover the 1 other flag we've identified, for free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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.

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