U.S. Markets close in 7 mins

Henkel AG & Co KGaA (ETR:HEN3): Is It A Smart Long Term Opportunity?

Daryl Painter

Looking at Henkel AG & Co KGaA’s (ETR:HEN3) earnings update in June 2018, it seems that analyst expectations are fairly bearish, with profits predicted to rise by 5.1% next year relative to the higher past 5-year average growth rate of 10.3%. With trailing-twelve-month net income at current levels of €2.44b, we should see this rise to €2.56b in 2019. Below is a brief commentary on the longer term outlook the market has for Henkel KGaA. Investors wanting to learn more about other aspects of the company should research its fundamentals here.

View our latest analysis for Henkel KGaA

Exciting times ahead?

Over the next three years, it seems the consensus view of the 27 analysts covering HEN3 is skewed towards the positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. I’ve plotted out each year’s earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of HEN3’s earnings growth over these next few years.

XTRA:HEN3 Future Profit August 29th 18

By 2021, HEN3’s earnings should reach €3.04b, from current levels of €2.52b, resulting in an annual growth rate of 7.0%. EPS reaches €6.79 in the final year of forecast compared to the current €5.8 EPS today. The bottom-line growth seems to be caused by reduction in costs rather than purely top-line expansion as earnings is increasing at a faster rate. With a current profit margin of 12.6%, this movement will result in a margin of 13.7% by 2021.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Henkel KGaA, I’ve put together three essential factors you should further examine:

  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 Henkel KGaA 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 Henkel KGaA is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Henkel KGaA? 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.