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The latest earnings update Oil Search Limited (ASX:OSH) released in December 2018 showed that the company gained from a robust tailwind, eventuating to a double-digit earnings growth of 13%. Investors may find it useful to understand how market analysts perceive Oil Search's earnings growth trajectory over the next couple of years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
Market analysts' consensus outlook for the coming year seems positive, with earnings growing by a robust 38%. This growth seems to continue into the following year with rates reaching double digit 56% compared to today’s earnings, and finally hitting US$555m by 2022.
Even though it is helpful to be aware of the rate of growth each year relative to today’s figure, it may be more beneficial gauging the rate at which the earnings are moving on average every year. The benefit of this approach is that we can get a bigger picture of the direction of Oil Search's earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I've appended 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 7.6%. This means that, we can assume Oil Search will grow its earnings by 7.6% every year for the next couple of years.
For Oil Search, I've compiled three key 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 OSH 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 OSH is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of OSH? 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 firstname.lastname@example.org. 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.