There's been a notable change in appetite for International Consolidated Airlines Group, S.A. (LON:IAG) shares in the week since its quarterly report, with the stock down 12% to UK£1.89. It was not a great result overall. While revenues of €4.6b were in line with analyst predictions, earnings were less than expected, missing statutory estimates by 20% to hit €0.86 per share. 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 thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the 24 analysts covering International Consolidated Airlines Group provided consensus estimates of €13.6b revenue in 2020, which would reflect a stressful 45% decline on its sales over the past 12 months. Per-share losses are expected to explode, reaching €1.00 per share. Yet prior to the latest earnings, the analysts had been forecasting revenues of €16.0b and losses of €0.31 per share in 2020. There's been a definite change in sentiment in this update, with the analysts administering a notable cut to next year's revenue estimates, while at the same time increasing their loss per share forecasts.
The average price target was broadly unchanged at €4.87, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. 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 International Consolidated Airlines Group at €7.48 per share, while the most bearish prices it at €2.28. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely different views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast revenue decline of 45%, a significant reduction from annual growth of 3.2% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 11% next year. It's pretty clear that International Consolidated Airlines Group's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that the analysts increased their loss per share estimates for 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. 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 International Consolidated Airlines Group. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple International Consolidated Airlines Group analysts - going out to 2024, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 2 warning signs for International Consolidated Airlines Group (1 can't be ignored!) that you should be aware of.
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