Investors in Public Joint Stock Company Magnit (MCX:MGNT) had a good week, as its shares rose 2.8% to close at ₽2,780 following the release of its yearly results. It was an okay report, and revenues came in at ₽1.4t, approximately in line with analyst estimates leading up to the results announcement. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. We thought readers would find it interesting to see analysts’ latest (statutory) post-earnings forecasts for next year.
After the latest results, the eleven analysts covering Magnit are now predicting revenues of ₽1.85t in 2020. If met, this would reflect a sizeable 35% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to surge 39% to ₽136. Yet prior to the latest earnings, analysts had been forecasting revenues of ₽1.88t and earnings per share (EPS) of ₽151 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 minor downgrade to their earnings per share forecasts.
It might be a surprise to learn that the consensus price target fell 5.3% to US$59.29, with analysts clearly linking lower forecast earnings to the performance of the stock price. 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. The most optimistic Magnit analyst has a price target of US$75.02 per share, while the most pessimistic values it at US$34.58. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
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. It’s clear from the latest estimates that Magnit’s rate of growth is expected to accelerate meaningfully, with forecast 35% revenue growth noticeably faster than its historical growth of 4.9%p.a. 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 3.3% per year. Factoring in the forecast acceleration in revenue, it’s pretty clear that Magnit is expected to grow much faster than its 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. Happily, there were no major changes to revenue forecasts, with analysts still expecting the business to grow faster than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by the latest results, leading to a lower estimate of Magnit’s future valuation.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have forecasts for Magnit going out to 2024, and you can see them free on our platform here.
It might also be worth considering whether Magnit’s debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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