Diploma PLC (LON:DPLM) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's statutory forecasts. The revenue forecast for this year has experienced a facelift, with the analysts now much more optimistic on its sales pipeline.
Following the upgrade, the most recent consensus for Diploma from its seven analysts is for revenues of UK£705m in 2021 which, if met, would be a huge 31% increase on its sales over the past 12 months. Statutory earnings per share are presumed to leap 45% to UK£0.63. Prior to this update, the analysts had been forecasting revenues of UK£612m and earnings per share (EPS) of UK£0.60 in 2021. The forecasts seem more optimistic now, with a decent improvement in revenue and a small lift in earnings per share estimates.
It will come as no surprise to learn that the analysts have increased their price target for Diploma 6.1% to UK£20.88 on the back of these upgrades. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Diploma at UK£25.50 per share, while the most bearish prices it at UK£16.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
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. It's clear from the latest estimates that Diploma's rate of growth is expected to accelerate meaningfully, with the forecast 31% revenue growth noticeably faster than its historical growth of 10% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 4.5% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Diploma is expected to grow much faster than its industry.
The Bottom Line
The biggest takeaway for us from these new estimates is that analysts upgraded their earnings per share estimates, with improved earnings power expected for this year. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. There was also an increase in the price target, suggesting that there is more optimism baked into the forecasts than there was previously. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Diploma.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Diploma going out to 2023, and you can see them free on our platform here..
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.