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It's been a good week for Innospec Inc. (NASDAQ:IOSP) shareholders, because the company has just released its latest third-quarter results, and the shares gained 3.9% to US$68.75. Revenues of US$265m fell slightly short of expectations, but earnings were a definite bright spot, with statutory per-share profits of US$0.51 an impressive 168% ahead of estimates. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Innospec after the latest results.
Following the latest results, Innospec's twin analysts are now forecasting revenues of US$1.33b in 2021. This would be a satisfactory 4.4% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to surge 125% to US$3.41. Before this earnings report, the analysts had been forecasting revenues of US$1.37b and earnings per share (EPS) of US$3.67 in 2021. It's pretty clear that pessimism has reared its head after the latest results, leading to a weaker revenue outlook and a small dip in earnings per share estimates.
The analysts made no major changes to their price target of US$90.00, suggesting the downgrades are not expected to have a long-term impact on Innospec's valuation.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It's pretty clear that there is an expectation that Innospec's revenue growth will slow down substantially, with revenues next year expected to grow 4.4%, compared to a historical growth rate of 10% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 5.6% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Innospec.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. 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. The consensus price target held steady at US$90.00, with the latest estimates not enough to have an impact on their price targets.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At least one analyst has provided forecasts out to 2022, which can be seen for free on our platform here.
Before you take the next step you should know about the 3 warning signs for Innospec that we have uncovered.
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.
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