Last week, you might have seen that A. O. Smith Corporation (NYSE:AOS) released its full-year result to the market. The early response was not positive, with shares down 4.4% to US$43.45 in the past week. Results were roughly in line with estimates, with revenues of US$3.0b and statutory earnings per share of US$2.22. 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. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, the most recent consensus for A. O. Smith from nine analysts is for revenues of US$3.09b in 2020, which is a reasonable 3.3% increase on its sales over the past 12 months. Statutory earnings per share are expected to swell 10% to US$2.44. Yet prior to the latest earnings, analysts had been forecasting revenues of US$3.09b and earnings per share (EPS) of US$2.53 in 2020. So it looks like there’s been a small decline in overall sentiment after the recent results – there’s been no major change to revenue estimates, but analysts did make a small dip in their earnings per share forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$49.29, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on 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 A. O. Smith at US$57.00 per share, while the most bearish prices it at US$43.00. The narrow spread of estimates could suggest that the business’ future is relatively easy to value, or that analysts have a clear view on its prospects.
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. We would highlight that A. O. Smith’s revenue growth is expected to slow, with forecast 3.3% increase next year well below the historical 6.0%p.a. growth over the last five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 4.2% per year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect A. O. Smith to grow slower than the wider market.
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 A. O. Smith. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – although our data does suggest that A. O. Smith’s revenues are expected to perform worse than the wider market. The consensus price target held steady at US$49.29, with the latest estimates not enough to have an impact on analysts’ estimated valuations.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates – from multiple A. O. Smith analysts – going out to 2024, and you can see them free on our platform here.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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