Strong Growth Strategies And Asset Shifts Fuel Bright Earnings Outlook

Key Takeaways

• Strong earnings growth and strategic expansion by key companies, including Empower and Wealthsimple, potentially enhance future earnings and asset value.
  
• Share buybacks and business sales bolster earnings per share, net asset value, and shareholder returns, with reinvestment opportunities enhanced by generated cash.
  
• Exposure to noncash items and reliance on market conditions may impact consistent earnings and strategic growth, affecting investor perceptions and share price.

Catalysts

An international management and holding company, offers financial services in North America, Europe, and Asia.

• Strong earnings growth reported by main operating companies, Great-West Life and IGM Financial, with expectations for continued momentum in key sectors like U.S. and Canadian markets, likely to enhance future earnings.
  
• Empower's growth strategy focuses on increasing market share and expanding wealth management opportunities, potentially driving revenue increases and improving earnings growth.
  
• Continued expansion and client acquisition by Wealthsimple, along with valuation increases, signals potential future revenue growth and overall asset value improvement.
  
• Ongoing buyback activity contributes to earnings per share (EPS) improvement, making shares more attractive and boosting overall shareholder value.
  
• Sale and monetization of stand-alone businesses like Peak expected to generate significant cash proceeds, positively impacting net asset value (NAV) and providing funds for further shareholder returns or reinvestment.

Power Corporation of Canada Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Power Corporation of Canada's revenue will grow by 30.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.6% today to 4.4% in 3 years time.
• Analysts expect earnings to reach CA$3.4 billion (and earnings per share of CA$6.02) by about November 2027, up from CA$2.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CA$3.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.0x on those 2027 earnings, down from 13.2x today. This future PE is lower than the current PE for the CA Insurance industry at 13.9x.
• Analysts expect the number of shares outstanding to decline by 4.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.45%, as per the Simply Wall St company report.

Power Corporation of Canada Future Earnings Per Share Growth

Risks

• Significant exposure to noncash items and adjustments could create volatility in reported earnings, impacting investor perceptions of consistent earnings growth.
  
• Lower adjusted net earnings from continuing operations compared to the prior year may raise concerns about sustainable profitability, potentially pressuring the share price.
  
• Reductions in net asset value (NAV) at subsidiaries like Lumenpulse and Lion could signal issues in certain segments of the portfolio, posing a risk to the overall NAV growth trajectory.
  
• The potential for continued noncash impairment charges and losses related to alternative investments poses a threat to net earnings and shareholder perception of strategic investments.
  
• Dependent on economic and market conditions, the strategy of returning capital to shareholders via dividends and buybacks may limit available funds for reinvestment and growth initiatives, potentially affecting long-term earnings growth.

Valuation

• The analysts have a consensus price target of CA$49.94 for Power Corporation of Canada based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$56.0, and the most bearish reporting a price target of just CA$44.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be CA$77.4 billion, earnings will come to CA$3.4 billion, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 6.4%.
• Given the current share price of CA$46.94, the analyst's price target of CA$49.94 is 6.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.