It's been a pretty great week for IHS Markit Ltd. (NYSE:INFO) shareholders, with its shares surging 12% to US$58.20 in the week since its latest quarterly results. It looks like a credible result overall - although revenues of US$1.1b were what the analysts expected, IHS Markit surprised by delivering a (statutory) profit of US$1.20 per share, an impressive 253% above what was forecast. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Following the recent earnings report, the consensus from19 analysts covering IHS Markit is for revenues of US$4.31b in 2020, implying a measurable 3.2% decline in sales compared to the last 12 months. Statutory earnings per share are predicted to increase 8.5% to US$2.39. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$4.54b and earnings per share (EPS) of US$1.63 in 2020. While revenue forecasts have been revised downwards, the analysts look to have become more optimistic on the company's cost base, given the sizeable expansion in to the earnings per share numbers.
The analysts have cut their price target 13% to US$68.40 per share, suggesting that the declining revenue was a more crucial indicator than the expected improvement in earnings. 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 IHS Markit, with the most bullish analyst valuing it at US$90.00 and the most bearish at US$55.00 per share. 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 IHS Markit shareholders.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the IHS Markit's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 3.2%, a significant reduction from annual growth of 17% 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 5.7% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - IHS Markit is expected to lag the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around IHS Markit's earnings potential next year. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. Still, earnings per share are more important to value creation for shareholders. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of IHS Markit's future valuation.
With that in mind, we wouldn't be too quick to come to a conclusion on IHS Markit. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple IHS Markit analysts - going out to 2022, and you can see them free on our platform here.
We don't want to rain on the parade too much, but we did also find 3 warning signs for IHS Markit (1 is concerning!) that you need to be mindful of.
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