Shareholders in Reliance Worldwide Corporation Limited (ASX:RWC) had a terrible week, as shares crashed 28% to AU$3.38 in the week since its latest half-yearly results. Results overall were not great, with earnings of AU$0.064 per share falling drastically short of analyst expectations. Meanwhile revenues hit AU$569m and were slightly better than forecasts. 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. 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 Reliance Worldwide from twelve analysts is for revenues of AU$1.16b in 2020, which is a reasonable 3.1% increase on its sales over the past 12 months. Statutory earnings per share are expected to step up 12% to AU$0.17. Before this earnings report, analysts had been forecasting revenues of AU$1.16b and earnings per share (EPS) of AU$0.20 in 2020. So there's definitely been a decline in analyst sentiment after the latest results, noting the substantial drop in new EPS forecasts.
It might be a surprise to learn that the consensus price target fell 9.6% to AU$4.00, with analysts clearly linking lower forecast earnings to the performance of the stock price. 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. Currently, the most bullish analyst values Reliance Worldwide at AU$4.80 per share, while the most bearish prices it at AU$3.50. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
It can also be useful to step back and take a broader view of how analyst forecasts compare to Reliance Worldwide's performance in recent years. It's pretty clear that analysts expect Reliance Worldwide's revenue growth will slow down substantially, with revenues next year expected to grow 3.1%, compared to a historical growth rate of 32% over the past three years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 5.1% per 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 Reliance Worldwide.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Reliance Worldwide. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.
With that in mind, we wouldn't be too quick to come to a conclusion on Reliance Worldwide. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Reliance Worldwide analysts - going out to 2024, and you can see them free on our platform here.
It might also be worth considering whether Reliance Worldwide's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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