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Inovalon Holdings, Inc. (NASDAQ:INOV) missed earnings with its latest quarterly results, disappointing overly-optimistic forecasters. Unfortunately, Inovalon Holdings delivered a serious earnings miss. Revenues of US$161m were 10% below expectations, and statutory earnings per share of US$0.01 missed estimates by 81%. 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've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Taking into account the latest results, the consensus forecast from Inovalon Holdings' eight analysts is for revenues of US$755.0m in 2021, which would reflect a meaningful 16% improvement in sales compared to the last 12 months. Per-share earnings are expected to shoot up 700% to US$0.30. Before this earnings report, the analysts had been forecasting revenues of US$759.7m and earnings per share (EPS) of US$0.27 in 2021. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the nice gain to earnings per share expectations following these results.
The consensus price target was unchanged at US$25.63, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Inovalon Holdings analyst has a price target of US$31.00 per share, while the most pessimistic values it at US$15.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. It's clear from the latest estimates that Inovalon Holdings' rate of growth is expected to accelerate meaningfully, with the forecast 16% revenue growth noticeably faster than its historical growth of 10%p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 19% next year. Factoring in the forecast acceleration in revenue, it's pretty clear that Inovalon Holdings is expected to grow at about the same rate as 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 Inovalon Holdings' earnings potential next year. They also reconfirmed their revenue estimates, with the company predicted to grow at about the same rate as the wider industry. The consensus price target held steady at US$25.63, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn't be too quick to come to a conclusion on Inovalon Holdings. Long-term earnings power is much more important than next year's profits. We have forecasts for Inovalon Holdings 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 3 warning signs for Inovalon Holdings (of which 1 is potentially serious!) you should know about.
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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