Analysts might have been a bit too bullish on Scandinavian Tobacco Group A/S (CPH:STG), given that the company fell short of expectations when it released its quarterly results last week. Results showed a clear earnings miss, with ø1.8b revenue coming in 4.1% lower than what analysts expected. Earnings per share (EPS) of ø1.70 missed the mark badly, arriving some 26% below what analysts had expected. Following the result, 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. We've gathered the most recent forecasts to see whether analysts have changed their earnings models, following these results.
Taking into account the latest results, Scandinavian Tobacco Group's three analysts currently expect revenues in 2020 to be ø6.95b, approximately in line with the last 12 months. Earnings per share are expected to shoot up 38% to ø8.66. Before this earnings report, analysts had been forecasting revenues of ø7.38b and earnings per share (EPS) of ø8.52 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 average analyst price target was reduced 6.0% to ø105, with the lower revenue forecasts indicating negative sentiment towards Scandinavian Tobacco Group, even though earnings forecasts were unchanged. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. The most optimistic Scandinavian Tobacco Group analyst has a price target of ø125 per share, while the most pessimistic values it at ø90.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
In addition, we can look to Scandinavian Tobacco Group's past performance and see whether business is expected to improve, and if the company is expected to perform better than wider market. It's pretty clear that analysts expect Scandinavian Tobacco Group's revenue growth will slow down substantially, with revenues next year expected to grow 0.8%, compared to a historical growth rate of 1.5% over the past five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 3.2% 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 Scandinavian Tobacco Group.
The Bottom Line
The most important thing to take away is that there's been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. Even so, earnings are more important to the intrinsic value of the business. The consensus price target fell measurably, with analysts seemingly not reassured by the latest results, leading to a lower estimate of Scandinavian Tobacco Group's future valuation.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Scandinavian Tobacco Group going out to 2021, and you can see them free on our platform here.
You can also view our analysis of Scandinavian Tobacco Group's balance sheet, and whether we think Scandinavian Tobacco Group is carrying too much debt, for free on our platform here.
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