It's been a pretty great week for Digi International Inc. (NASDAQ:DGII) shareholders, with its shares surging 16% to US$17.36 in the week since its latest yearly results. The result was positive overall - although revenues of US$254m were in line with what analysts predicted, Digi International surprised by delivering a profit of US$0.35 per share, modestly greater than expected. 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. With this in mind, we've gathered the latest forecasts to see what analysts are expecting for next year.
Taking into account the latest results, the most recent consensus for Digi International from six analysts is for revenues of US$302.1m in 2020, which is a solid 19% increase on its sales over the past 12 months. Earnings per share are expected to shoot up 116% to US$0.77. In the lead-up to this report, analysts had been modelling revenues of US$271.4m and earnings per share (EPS) of US$0.47 in 2020. So we can see there's been a pretty clear increase in analyst sentiment following the latest results, with both revenues and earnings per share receiving a decent lift in the latest estimates.
It will come as no surprise to learn that analysts have increased their price target for Digi International 8.6% to US$18.93 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. The most optimistic Digi International analyst has a price target of US$26.00 per share, while the most pessimistic values it at US$16.00. 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.
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. It's clear from the latest estimates that Digi International's rate of growth is expected to accelerate meaningfully, with forecast 19% revenue growth noticeably faster than its historical growth of 5.0%p.a. over the past five years. Compare this with other companies in the same market, which are forecast to grow their revenue 3.3% next year. Factoring in the forecast acceleration in revenue, it's pretty clear that Digi International is expected to grow much faster than its market.
The Bottom Line
The most important thing to take away from this is that analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Digi International following these results. Pleasantly, analysts also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow faster than the wider market. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Digi International going out to 2021, and you can see them free on our platform here..
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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