U.S. markets closed

Tetra Tech, Inc. Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Predictions

Simply Wall St

Tetra Tech, Inc. (NASDAQ:TTEK) shares fell 3.5% to US$85.60 in the week since its latest quarterly results. It looks like a credible result overall - although revenues of US$614m were in line with what analysts predicted, Tetra Tech surprised by delivering a statutory profit of US$0.85 per share, a notable 11% above expectations. 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. We've gathered the most recent statutory forecasts to see whether analysts have changed their earnings models, following these results.

View our latest analysis for Tetra Tech

NasdaqGS:TTEK Past and Future Earnings, February 3rd 2020

After the latest results, the seven analysts covering Tetra Tech are now predicting revenues of US$2.56b in 2020. If met, this would reflect an okay 4.6% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to expand 17% to US$3.51. In the lead-up to this report, analysts had been modelling revenues of US$2.56b and earnings per share (EPS) of US$3.43 in 2020. So the consensus seems to have become somewhat more optimistic on Tetra Tech's earnings potential following these results.

There's been no major changes to the consensus price target of US$96.33, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock's valuation. 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. Currently, the most bullish analyst values Tetra Tech at US$110 per share, while the most bearish prices it at US$84.00. Still, with such a tight range of estimates, it suggests analysts have a pretty good idea of what they think the company is worth.

It can also be useful to step back and take a broader view of how analyst forecasts compare to Tetra Tech's performance in recent years. It's pretty clear that analysts expect Tetra Tech's revenue growth will slow down substantially, with revenues next year expected to grow 4.6%, compared to a historical growth rate of 7.0% over the past five years. Juxtapose this against the other companies in the market with analyst coverage, which are forecast to grow their revenues (in aggregate) 5.4% next year. Factoring in the forecast slowdown in growth, it looks like analysts are expecting Tetra Tech to grow at about the same rate as the wider market.

The Bottom Line

The biggest takeaway for us from these new estimates is that the consensus upgraded its earnings per share estimates, showing a clear improvement in sentiment around Tetra Tech's earnings potential next year. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall market. The consensus price target held steady at US$96.33, 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 Tetra Tech. Long-term earnings power is much more important than next year's profits. We have forecasts for Tetra Tech going out to 2022, and you can see them free on our platform here.

It might also be worth considering whether Tetra Tech's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.

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.

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. Thank you for reading.