Kathmandu Holdings Limited (NZSE:KMD) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. The consensus statutory numbers for both revenue and earnings per share (EPS) increased, with their view clearly much more bullish on the company's business prospects. The market may be pricing in some blue sky too, with the share price gaining 13% to NZ$1.23 in the last 7 days. It will be interesting to see if today's upgrade is enough to propel the stock even higher.
Following the upgrade, the latest consensus from Kathmandu Holdings' seven analysts is for revenues of NZ$737m in 2020, which would reflect a meaningful 8.8% improvement in sales compared to the last 12 months. Statutory earnings per share are supposed to nosedive 76% to NZ$0.05 in the same period. Yet before this consensus update, the analysts had been forecasting revenues of NZ$658m and losses of NZ$0.027 per share in 2020. So we can see that this has sparked a pretty clear upgrade to expectations, with higher revenues anticipated to lead to profit sooner than previously forecast.
It will come as no surprise to learn that the analysts have increased their price target for Kathmandu Holdings 11% to NZ$1.50 on the back of these upgrades. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Kathmandu Holdings, with the most bullish analyst valuing it at NZ$1.55 and the most bearish at NZ$1.44 per share. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting Kathmandu Holdings is an easy business to forecast or the underlying assumptions are obvious.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. Next year brings more of the same, according to the analysts, with revenue forecast to grow 8.8%, in line with its 8.8% annual growth over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 6.5% per year. So although Kathmandu Holdings is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that there is now an expectation for Kathmandu Holdings to become profitable this year, compared to previous expectations of a loss. Fortunately, analysts also upgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider market. With a serious upgrade to expectations and a rising price target, it might be time to take another look at Kathmandu Holdings.
Analysts are clearly in love with Kathmandu Holdings at the moment, but before diving in - you should be aware that we've identified some warning flags with the business, such as major dilution from new stock issuance in the past year. For more information, you can click through to our platform to learn more about this and the 2 other warning signs we've identified .
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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