Last week saw the newest half-yearly earnings release from Western Areas Limited (ASX:WSA), an important milestone in the company's journey to build a stronger business. Results overall were not great, with earnings of AU$0.089 per share falling drastically short of analyst expectations. Meanwhile revenues hit AU$156m and were slightly better than forecasts. 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.
Following the latest results, Western Areas's 14 analysts are now forecasting revenues of AU$354.1m in 2020. This would be a solid 18% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to shoot up 63% to AU$0.24. Before this earnings report, analysts had been forecasting revenues of AU$345.1m and earnings per share (EPS) of AU$0.26 in 2020. So it's pretty clear consensus is mixed on Western Areas after the latest results; while analysts lifted revenue numbers, they also administered a small dip in per-share earnings expectations.
There's been no major changes to an analyst price target of AU$2.95, suggesting that the impact of higher forecast sales and lower earnings won't result in a meaningful change to the business' 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. There are some variant perceptions on Western Areas, with the most bullish analyst valuing it at AU$3.60 and the most bearish at AU$2.50 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 Western Areas shareholders.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. For example, we noticed that Western Areas's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow at 18%, well above its historical decline of 1.9% a year over the past five years. Compare this against analyst estimates for the wider market, which suggest that (in aggregate) market revenues are expected to grow 1.2% next year. So it looks like Western Areas is expected to grow faster than its competitors, at least for a while.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Western Areas. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow faster than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Western Areas analysts - going out to 2023, and you can see them free on our platform here.
We also provide an overview of the Western Areas Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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