Investors in Rentokil Initial plc (LON:RTO) had a good week, as its shares rose 5.0% to close at UK£5.41 following the release of its half-year results. It was a credible result overall, with revenues of UK£1.6b and statutory earnings per share of UK£0.14 both in line with analyst estimates, showing that Rentokil Initial is executing in line with expectations. Following the result, the 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Rentokil Initial after the latest results.
Following the latest results, Rentokil Initial's 13 analysts are now forecasting revenues of UK£3.28b in 2022. This would be a reasonable 6.8% improvement in sales compared to the last 12 months. Per-share earnings are expected to step up 12% to UK£0.16. Before this earnings report, the analysts had been forecasting revenues of UK£3.23b and earnings per share (EPS) of UK£0.16 in 2022. So it's pretty clear that, although the analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.
It will come as no surprise then, to learn that the consensus price target is largely unchanged at UK£5.96. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Rentokil Initial at UK£7.10 per share, while the most bearish prices it at UK£4.60. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Rentokil Initial shareholders.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's clear from the latest estimates that Rentokil Initial's rate of growth is expected to accelerate meaningfully, with the forecast 14% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 5.6% p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 6.0% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that Rentokil Initial is expected to grow much faster than its industry.
The Bottom Line
The most obvious conclusion is that there's been no major change in the business' prospects in recent times, with the analysts holding their earnings forecasts steady, in line with previous estimates. Happily, there were no major changes to revenue forecasts, with the business still expected to grow faster than the wider industry. The consensus price target held steady at UK£5.96, with the latest estimates not enough to have an impact on their price targets.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for Rentokil Initial going out to 2024, and you can see them free on our platform here.
It is also worth noting that we have found 1 warning sign for Rentokil Initial that you need to take into consideration.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here