Last week, you might have seen that Telefonaktiebolaget LM Ericsson (publ) (STO:ERIC B) released its full-year result to the market. The early response was not positive, with shares down 6.6% to kr79.10 in the past week. Telefonaktiebolaget LM Ericsson reported kr227b in revenue, roughly in line with analyst forecasts, although statutory earnings per share (EPS) of kr0.67 beat expectations, being 4.9% higher than what analysts 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether analysts have changed their mind on Telefonaktiebolaget LM Ericsson after the latest results.
Taking into account the latest results, the most recent consensus for Telefonaktiebolaget LM Ericsson from 24 analysts is for revenues of kr236.9b in 2020, which is a satisfactory 4.3% increase on its sales over the past 12 months. Statutory earnings per share are expected to bounce 570% to kr4.51. Before this earnings report, analysts had been forecasting revenues of kr235.5b and earnings per share (EPS) of kr5.07 in 2020. So there's definitely been a decline in analyst sentiment after the latest results, noting the real cut to new EPS forecasts.
The consensus price target held steady at kr97.69, with analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. 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. There are some variant perceptions on Telefonaktiebolaget LM Ericsson, with the most bullish analyst valuing it at kr114 and the most bearish at kr77.00 per share. 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.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. One thing stands out from these estimates, which is that analysts are forecasting Telefonaktiebolaget LM Ericsson to grow faster in the future than it has in the past, with revenues expected to grow 4.3%. If achieved, this would be a much better result than the 2.6% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the market are forecast to see their revenue grow 3.2% per year. Although Telefonaktiebolaget LM Ericsson's revenues are expected to improve, it seems that analysts are also expecting it to grow faster than the wider market.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - and our data does suggest that Telefonaktiebolaget LM Ericsson's revenues are expected to grow faster than the wider market. The consensus price target held steady at kr97.69, with the latest estimates not enough to have an impact on analysts' estimated valuations.
With that in mind, we wouldn't be too quick to come to a conclusion on Telefonaktiebolaget LM Ericsson. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Telefonaktiebolaget LM Ericsson going out to 2024, and you can see them free on our platform here..
We also provide an overview of the Telefonaktiebolaget LM Ericsson Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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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