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GrainCorp Limited (ASX:GNC): Earnings Expected To Remain Subdued

After GrainCorp Limited’s (ASX:GNC) recent earnings announcement in March 2018, analyst consensus outlook appear bearish, with profits predicted to drop by -18% next year. Though this outlook is not unsubstantiated given the negative earnings growth rate over the past five years on average. Currently with a railing-twelve-month profit of AU$71m, the consensus growth rate suggests that earnings will drop to AU$58m by 2019. Below is a brief commentary around GrainCorp’s earnings outlook going forward, which may give you a sense of market sentiment for the company. For those interested in more of an analysis of the company, you can research its fundamentals here.

See our latest analysis for GrainCorp

Can we expect GrainCorp to keep growing?

The longer term view from the 11 analysts covering GNC is one of positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To reduce the year-on-year volatility of analyst earnings forecast, I’ve inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.

ASX:GNC Future Profit October 10th 18

This results in an annual growth rate of 20% based on the most recent earnings level of AU$125m to the final forecast of AU$196m by 2021. However, if we exclude extraordinary items from net income, we see that earnings is projected to fall over time, resulting in an EPS of A$0.49 in the final year of forecast compared to the current A$0.55 EPS today. Growth in earnings appears to be a result of cost cutting activities, as revenues is expected to grow much slower than earnings. With a current profit margin of 2.7%, this movement will result in a margin of 3.8% by 2021.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For GrainCorp, there are three important factors you should look at:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is GrainCorp worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether GrainCorp is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of GrainCorp? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.