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Will Smith & Nephew plc's (LON:SN.) Earnings Grow Over The Next Year?

Simply Wall St

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Looking at Smith & Nephew plc's (LON:SN.) earnings update in December 2018, it seems that analyst forecasts are fairly bearish, with earnings expected to decline by 5.2% in the upcoming year relative to the past 5-year average growth rate of 10.0%. With trailing-twelve-month net income at current levels of US$663m, the consensus growth rate suggests that earnings will decline to US$628m by 2020. I will provide a brief commentary around the figures and analyst expectations in the near term. Investors wanting to learn more about other aspects of the company should research its fundamentals here.

View our latest analysis for Smith & Nephew

Can we expect Smith & Nephew to keep growing?

The longer term expectations from the 17 analysts of SN. is tilted towards the positive sentiment. Generally, broker analysts tend to make predictions for up to three years given the lack of visibility beyond this point. To get an idea of the overall earnings growth trend for SN., I’ve plotted out each year’s earnings expectations and inserted a line of best fit to determine an annual rate of growth from the slope of this line.

LSE:SN. Past and Future Earnings, July 15th 2019

From the current net income level of US$663m and the final forecast of US$873m by 2022, the annual rate of growth for SN.’s earnings is 10%. This leads to an EPS of $1.0 in the final year of projections relative to the current EPS of $0.76. Margins are currently sitting at 14%, which is expected to expand to 16% by 2022.

Next Steps:

Future outlook is only one aspect when you're building an investment case for a stock. For Smith & Nephew, there are three important factors you should further research:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is Smith & Nephew worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Smith & Nephew is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Smith & Nephew? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.