Investors in George Weston Limited (TSE:WN) had a good week, as its shares rose 2.4% to close at CA$106 following the release of its third-quarter results. Revenues were in line with forecasts, at CA$15b, although earnings per share came in 11% below what analysts expected, at CA$3.99 per share. 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.
Taking into account the latest results, the most recent consensus for George Weston from four analysts is for revenues of CA$51.9b in 2020, which is a satisfactory 4.3% increase on its sales over the past 12 months. Earnings per share are expected to soar 2184% to CA$5.44. Yet prior to the latest earnings, analysts had been forecasting revenues of CA$51.7b and earnings per share (EPS) of CA$4.76 in 2020. There was no real change to the revenue estimates, but analysts do seem more bullish on earnings, given the nice gain to earnings per share expectations following these results.
The consensus price target was unchanged at CA$121, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. 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. The most optimistic George Weston analyst has a price target of CA$127 per share, while the most pessimistic values it at CA$113. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that analysts have a clear view on its prospects.
It can be useful to take a broader overview by seeing how analyst forecasts compare, both to the George Weston's past performance and to peers in the same market. Analysts are definitely expecting George Weston's growth to accelerate, with the forecast 4.3% growth ranking favourably alongside historical growth of 2.1% per annum over the past five years. Compare this with other companies in the same market, which are forecast to grow their revenue 2.5% next year. Factoring in the forecast acceleration in revenue, it's pretty clear that George Weston is expected to grow much faster than its market.
The Bottom Line
The most important thing to take away from this is that analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards George Weston following these results. Happily, there were no major changes to revenue forecasts, with analysts still expecting the business to grow faster than the wider market. 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.
With that in mind, we wouldn't be too quick to come to a conclusion on George Weston. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple George Weston analysts - going out to 2021, and you can see them free on our platform here.
You can also view our analysis of George Weston's balance sheet, and whether we think George Weston is carrying too much debt, for free on our platform here.
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