Shareholders might have noticed that Insurance Australia Group Limited (ASX:IAG) filed its half-yearly result this time last week. The early response was not positive, with shares down 6.0% to AU$5.32 in the past week. The result was positive overall - although revenues of AU$3.6b were in line with what the analysts predicted, Insurance Australia Group surprised by delivering a statutory profit of AU$0.45 per share, modestly greater than expected. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Taking into account the latest results, the consensus forecast from Insurance Australia Group's nine analysts is for revenues of AU$7.51b in 2020, which would reflect a credible 2.5% improvement in sales compared to the last 12 months. Statutory earnings per share are forecast to fall 12% to AU$0.33 in the same period. In the lead-up to this report, the analysts had been modelling revenues of AU$7.32b and earnings per share (EPS) of AU$0.26 in 2020. There's been a pretty noticeable increase in sentiment, with the analysts upgrading revenues and making a very substantial lift in earnings per share in particular.
Despite these upgrades,the analysts have not made any major changes to their price target of AU$6.10, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Insurance Australia Group analyst has a price target of AU$7.00 per share, while the most pessimistic values it at AU$5.13. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Insurance Australia Group's past performance and to peers in the same industry. For example, we noticed that Insurance Australia Group's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow 2.5%, well above its historical decline of 6.1% a year over the past five years. What's also interesting is that our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue decline 0.06% annually for the foreseeable future. So although Insurance Australia Group is expected to return to growth, it's also expected to grow revenues during a time when the wider industry is estimated to see revenue decline.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Insurance Australia Group's earnings potential next year. On the plus side, they also lifted their revenue estimates, and the company is expected to perform better than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on Insurance Australia Group. Long-term earnings power is much more important than next year's profits. We have forecasts for Insurance Australia Group going out to 2023, and you can see them free on our platform here.
It is also worth noting that we have found 2 warning signs for Insurance Australia Group that you need to take into consideration.
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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