It's been a good week for Trelleborg AB (publ) (STO:TREL B) shareholders, because the company has just released its latest quarterly results, and the shares gained 2.3% to kr118. It looks like a credible result overall - although revenues of kr9.3b were in line with what the analysts predicted, Trelleborg surprised by delivering a statutory profit of kr3.05 per share, a notable 14% above expectations. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Taking into account the latest results, the seven analysts covering Trelleborg provided consensus estimates of kr33.1b revenue in 2020, which would reflect a considerable 9.2% decline on its sales over the past 12 months. Earnings are expected to improve, with Trelleborg forecast to report a statutory profit of kr7.71 per share. In the lead-up to this report, the analysts had been modelling revenues of kr34.0b and earnings per share (EPS) of kr7.78 in 2020. The consensus seems maybe a little more pessimistic, trimming their revenue forecasts after the latest results even though there was no change to its EPS estimates.
The consensus has reconfirmed its price target of kr141, showing that the analysts don't expect weaker sales expectations next year to have a material impact on Trelleborg's market value. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Trelleborg at kr156 per share, while the most bearish prices it at kr126. Still, with such a tight range of estimates, it suggeststhe analysts have a pretty good idea of what they think the company is worth.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Trelleborg's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 9.2%, a significant reduction from annual growth of 9.8% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 3.9% next year. It's pretty clear that Trelleborg's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that there's been no major change in sentiment, with the analysts reconfirming that the business is performing in line with their previous earnings per share estimates. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. With that said, earnings are more important to the long-term value of the business. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on Trelleborg. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Trelleborg analysts - going out to 2024, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Trelleborg (at least 1 which is a bit unpleasant) , and understanding these should be part of your investment process.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
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