What Do Investors Need To Know About Fresnillo PLC’s (LON:FRES) Future?
In June 2018, Fresnillo PLC (LON:FRES) released its earnings update. Generally, analyst consensus outlook seem bearish, as a -5.0% fall in profits is expected in the upcoming year compared with the past 5-year average growth rate of 20%. With trailing-twelve-month net income at current levels of US$482m, the consensus growth rate suggests that earnings will decline to US$458m by 2019. In this article, I’ve outline a few earnings growth rates to give you a sense of the market sentiment for Fresnillo in the longer term. For those interested in more of an analysis of the company, you can research its fundamentals here.
See our latest analysis for Fresnillo
What can we expect from Fresnillo in the longer term?
Over the next three years, it seems the consensus view of the 14 analysts covering FRES is skewed towards the positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To get an idea of the overall earnings growth trend for FRES, I’ve plotted out each year’s earnings expectations and inserted a line of best fit to determine an annual rate of growth from the slope of this line.
By 2021, FRES’s earnings should reach US$545m, from current levels of US$561m, resulting in an annual growth rate of 3.8%. However, if we exclude extraordinary items from net income, we see that earnings is projected to fall over time, resulting in an EPS of $0.66 in the final year of forecast compared to the current $0.76 EPS today. The bottom-line growth seems to be caused by a high top-line growth of 7.1% falling down into the bottom line. This high rate of growth of revenue squeezes margins, as analysts predict an upcoming margin contraction from the current 27% to 21% by the end of 2021.
Next Steps:
Future outlook is only one aspect when you’re building an investment case for a stock. For Fresnillo, there are three important factors you should further research:
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Valuation: What is Fresnillo 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 Fresnillo is currently mispriced by the market.
Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Fresnillo? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
