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A week ago, Graco Inc. (NYSE:GGG) came out with a strong set of quarterly numbers that could potentially lead to a re-rate of the stock. It was a solid earnings report, with revenues and statutory earnings per share (EPS) both coming in strong. Revenues were 14% higher than the analysts had forecast, at US$439m, while EPS were US$0.66 beating analyst models by 58%. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
After the latest results, the eleven analysts covering Graco are now predicting revenues of US$1.65b in 2021. If met, this would reflect a modest 3.3% improvement in sales compared to the last 12 months. Per-share earnings are expected to rise 2.2% to US$1.84. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$1.63b and earnings per share (EPS) of US$1.83 in 2021. So it's pretty clear that, although the analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.
With the analysts reconfirming their revenue and earnings forecasts, it's surprising to see that the price target rose 7.0% to US$61.86. It looks as though they previously had some doubts over whether the business would live up to their expectations. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Graco analyst has a price target of US$73.00 per share, while the most pessimistic values it at US$49.00. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that Graco's revenue growth will slow down substantially, with revenues next year expected to grow 3.3%, compared to a historical growth rate of 5.9% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 7.3% next year. Factoring in the forecast slowdown in growth, it seems obvious that Graco is also expected to grow slower than other industry participants.
The Bottom Line
The most obvious conclusion is that there's been no major change in the business' prospects in recent times, with the analysts holding their earnings forecasts steady, in line with previous estimates. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Graco's revenues are expected to perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
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 Graco going out to 2023, and you can see them free on our platform here.
Plus, you should also learn about the 1 warning sign we've spotted with Graco .
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.
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