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H.B. Fuller Company (NYSE:FUL) came out with its first-quarter results last week, and we wanted to see how the business is performing and what industry forecasters think of the company following this report. Statutory earnings per share fell badly short of expectations, coming in at US$0.19, some 41% below analyst forecasts, although revenues were okay, approximately in line with analyst estimates at US$647m. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the current consensus, from the six analysts covering H.B. Fuller, is for revenues of US$2.78b in 2020, which would reflect a measurable 3.3% reduction in H.B. Fuller's sales over the past 12 months. Statutory earnings per share are predicted to bounce 25% to US$3.16. Before this earnings report, the analysts had been forecasting revenues of US$2.91b and earnings per share (EPS) of US$3.15 in 2020. So it looks like the analysts have become a bit less optimistic after the latest results announcement, with revenues expected to fall even as the company is supposed to maintain EPS.
It will come as no surprise then, that the consensus price target fell 17% to US$42.86 following these changes. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on H.B. Fuller, with the most bullish analyst valuing it at US$57.00 and the most bearish at US$46.00 per share. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or thatthe analysts have a strong view on its prospects.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 3.3% revenue decline a notable change from historical growth of 9.5% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 3.4% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - H.B. Fuller is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that there's been no major change in sentiment, with the analysts reconfirming that the business is performing in line with their previous earnings per share estimates. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. Still, earnings per share are more important to value creation for shareholders. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
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 H.B. Fuller analysts - going out to 2023, and you can see them free on our platform here.
And what about risks? Every company has them, and we've spotted 2 warning signs for H.B. Fuller (of which 1 is a bit unpleasant!) you should know about.
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