Uni-Select Inc. (TSE:UNS) shares fell 5.5% to CA$10.56 in the week since its latest third-quarter results. It looks like a pretty bad result, all things considered. Although revenues of US$451m were in line with analyst predictions, earnings fell badly short, missing estimates by 21% to hit US$0.86 per share. 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 thought readers would find it interesting to see analysts' latest post-earnings forecasts for next year.
Taking into account the latest results, the latest consensus from Uni-Select's four analysts is for revenues of US$1.79b in 2020, which would reflect a reasonable 2.4% improvement in sales compared to the last 12 months. Earnings per share are expected to bounce 21% to US$0.78. In the lead-up to this report, analysts had been modelling revenues of US$1.80b and earnings per share (EPS) of US$0.94 in 2020. Analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a real cut to EPS estimates.
The average analyst price target fell 7.7% to US$10.00, with reduced earnings forecasts clearly tied to a lower valuation estimate. 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 Uni-Select, with the most bullish analyst valuing it at US$12.82 and the most bearish at US$9.01 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Uni-Select shareholders.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. Analysts are definitely expecting Uni-Select's growth to accelerate, with the forecast 2.4% growth ranking favourably alongside historical growth of 1.8% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 3.6% per year. It seems obvious that, while the future growth outlook is brighter than the recent past, analysts also expect Uni-Select to grow slower 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 - although our data does suggest that Uni-Select's revenues are expected to perform worse than the wider market. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.
With that in mind, we wouldn't be too quick to come to a conclusion on Uni-Select. Long-term earnings power is much more important than next year's profits. We have forecasts for Uni-Select going out to 2021, and you can see them free on our platform here.
You can also see whether Uni-Select is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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