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What Should Investors Know About Codan Limited's (ASX:CDA) Earnings Trajectory?

Simply Wall St

In August 2019, Codan Limited (ASX:CDA) announced its most recent earnings update, which suggested that the company gained from a small tailwind, leading to a single-digit earnings growth of 9.8%. Below, I've presented key growth figures on how market analysts view Codan's earnings growth outlook over the next few years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.

View our latest analysis for Codan

Market analysts' consensus outlook for the upcoming year seems rather subdued, with earnings growing by a single digit 7.0%. The growth outlook in the following year seems much more buoyant with rates reaching double digit 18% compared to today’s earnings, and finally hitting AU$61m by 2022.

ASX:CDA Past and Future Earnings, September 1st 2019

Even though it is informative knowing the rate of growth year by year relative to today’s value, it may be more insightful estimating the rate at which the company is moving every year, on average. The advantage of this approach is that it removes the impact of near term flucuations and accounts for the overarching direction of Codan's earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I've inserted a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 9.2%. This means, we can presume Codan will grow its earnings by 9.2% every year for the next few years.

Next Steps:

For Codan, I've compiled three essential factors you should look at:

  1. Valuation: What is CDA worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CDA is currently mispriced by the market.
  2. Future Earnings: How does CDA's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of CDA? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.