It's been a sad week for McGrath RentCorp (NASDAQ:MGRC), who've watched their investment drop 11% to US$71.94 in the week since the company reported its full-year result. McGrath RentCorp reported US$570m in revenue, roughly in line with analyst forecasts, although statutory earnings per share (EPS) of US$3.93 beat expectations, being 3.3% higher than what analysts expected. Following the result, 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. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, the most recent consensus for McGrath RentCorp from three analysts is for revenues of US$587.6m in 2020, which is a satisfactory 3.0% increase on its sales over the past 12 months. Statutory per-share earnings are expected to be US$3.97, roughly flat on the last 12 months. In the lead-up to this report, analysts had been modelling revenues of US$584.3m and earnings per share (EPS) of US$4.01 in 2020. So it's pretty clear that, although analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.
Analysts reconfirmed their price target of US$94.50, showing that the business is executing well and in line with expectations. 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. The most optimistic McGrath RentCorp analyst has a price target of US$99.00 per share, while the most pessimistic values it at US$90.00. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that analysts have a clear view on its prospects.
It can also be useful to step back and take a broader view of how analyst forecasts compare to McGrath RentCorp's performance in recent years. We would highlight that McGrath RentCorp's revenue growth is expected to slow, with forecast 3.0% increase next year well below the historical 6.9%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 5.1% next year. So it's pretty clear that, while revenue growth is expected to slow down, analysts still expect the wider market to grow faster than McGrath RentCorp.
The Bottom Line
The most important thing to take away is that there's been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that McGrath RentCorp's revenues are expected to perform worse than the wider market. 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.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have forecasts for McGrath RentCorp going out to 2021, and you can see them free on our platform here.
It might also be worth considering whether McGrath RentCorp's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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