Last week, you might have seen that Vodafone Idea Limited (NSE:IDEA) released its second-quarter result to the market. The early response was not positive, with shares down 2.7% to ₹3.65 in the past week. Revenues of ₹108b arrived in line with expectations, although losses per share were ₹17.72, an impressive 973% smaller than what broker models predicted. This is an important time for investors, as they can track a company's performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. Readers will be glad to know we've aggregated the latest forecasts to see whether analysts have changed their mind on Vodafone Idea after the latest results.
Taking into account the latest results, the current consensus, from the 22 analysts covering Vodafone Idea, is for revenues of ₹442.1b in 2020, which would reflect a measurable 3.1% reduction in Vodafone Idea's sales over the past 12 months. Losses are forecast to balloon 79% to ₹3.56 per share. Before this latest report, the consensus had been expecting revenues of ₹442.5b and ₹5.44 per share in losses. There was no real change to the revenue estimates, but analysts do seem more bullish on earnings, given the massive increase in earnings per share expectations following these results.
There's been no major changes to the consensus price target of ₹6.19, suggesting that reduced loss estimates are not enough to have a long-term positive impact on the stock's valuation. 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. Currently, the most bullish analyst values Vodafone Idea at ₹10.50 per share, while the most bearish prices it at ₹2.50. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how analysts think this business will perform. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
In addition, we can look to Vodafone Idea's past performance and see whether business is expected to improve, and if the company is expected to perform better than wider market. We would highlight that sales are expected to reverse, with the forecast 3.1% revenue decline a notable change from historical growth of 2.5% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 2.9% annually for the foreseeable future. It's pretty clear that Vodafone Idea's revenues are expected to perform substantially worse than the wider market.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for next year. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Vodafone Idea's revenues are expected to perform worse than the wider market. The consensus price target held steady at ₹6.19, with the latest estimates not enough to have an impact on analysts' estimated valuations.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Vodafone Idea analysts - going out to 2024, and you can see them free on our platform here.
You can also view our analysis of Vodafone Idea's balance sheet, and whether we think Vodafone Idea is carrying too much debt, for free on our platform here.
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