It's been a good week for Meritor, Inc. (NYSE:MTOR) shareholders, because the company has just released its latest annual results, and the shares gained 5.1% to US$24.70. It looks like the results were a bit of a negative overall. While revenues of US$4.4b were in line with analyst predictions, earnings were less than expected, missing estimates by 3.3% to hit US$3.37 per share. 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. We thought readers would find it interesting to see analysts' latest post-earnings forecasts for next year.
Following the recent earnings report, the consensus fromsix analysts covering Meritor expects revenues of US$3.76b in 2020, implying a nervous 14% decline in sales compared to the last 12 months. Earnings per share are forecast to descend 10% to US$3.02 in the same period. Yet prior to the latest earnings, analysts had been forecasting revenues of US$4.14b and earnings per share (EPS) of US$3.05 in 2020. The consensus seems maybe a little more pessimistic, trimming their revenue forecasts after the latest results even though there was no change to its EPS estimates.
The consensus has reconfirmed its price target of US$25.43, showing that analysts don't expect weaker sales expectations next year to have a material impact on Meritor's market value. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Meritor at US$39.00 per share, while the most bearish prices it at US$19.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 14% a significant reduction from annual growth of 4.7% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 2.2% annually for the foreseeable future. It's pretty clear that Meritor's revenues are expected to perform substantially worse than the wider market.
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. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. Still, earnings per share are more important to value creation for shareholders. The consensus price target held steady at US$25.43, with the latest estimates not enough to have an impact on analysts' estimated valuations.
With that in mind, we wouldn't be too quick to come to a conclusion on Meritor. Long-term earnings power is much more important than next year's profits. We have forecasts for Meritor going out to 2022, and you can see them free on our platform here.
You can also view our analysis of Meritor's balance sheet, and whether we think Meritor is carrying too much debt, for free on our platform here.
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