As you might know, GlaxoSmithKline plc (LON:GSK) just kicked off its latest quarterly results with some very strong numbers. The company beat both earnings and revenue forecasts, with revenue of UK£9.1b, some 5.4% above estimates, and statutory earnings per share (EPS) coming in at UK£0.31, 49% ahead of expectations. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. 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, GlaxoSmithKline's 21 analysts currently expect revenues in 2020 to be UK£35.3b, approximately in line with the last 12 months. Statutory earnings per share are forecast to plunge 21% to UK£0.85 in the same period. Before this earnings report, the analysts had been forecasting revenues of UK£35.0b and earnings per share (EPS) of UK£0.80 in 2020. So the consensus seems to have become somewhat more optimistic on GlaxoSmithKline's earnings potential following these results.
There's been no major changes to the consensus price target of UK£18.74, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock'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. The most optimistic GlaxoSmithKline analyst has a price target of UK£22.40 per share, while the most pessimistic values it at UK£15.37. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await GlaxoSmithKline shareholders.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the GlaxoSmithKline's past performance and to peers in the same industry. We would highlight that GlaxoSmithKline's revenue growth is expected to slow, with forecast 0.4% increase next year well below the historical 7.9%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 7.8% next year. Factoring in the forecast slowdown in growth, it seems obvious that GlaxoSmithKline is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards GlaxoSmithKline following these results. 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.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple GlaxoSmithKline analysts - going out to 2024, and you can see them free on our platform here.
Before you take the next step you should know about the 2 warning signs for GlaxoSmithKline that we have uncovered.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.