Shareholders of Darling Ingredients Inc. (NYSE:DAR) will be pleased this week, given that the stock price is up 14% to US$22.60 following its latest quarterly results. It was not a great result overall. While revenues of US$842m were in line with analyst predictions, earnings were less than expected, missing estimates by 19% to hit US$0.15 per share. Earnings are an important time for investors, as they can track a company’s performance, look at what top analysts are forecasting for next year, and see if there’s been a change in sentiment towards the company. We’ve gathered the most recent forecasts to see whether analysts have changed their earnings models, following these results.
Following the latest results, Darling Ingredients’s five analysts are now forecasting revenues of US$3.5b in 2020. This would be a modest 4.7% improvement in sales compared to the last 12 months. Earnings per share are expected to surge 39% to US$0.92. In the lead-up to this report, analysts had been modelling revenues of US$3.6b and earnings per share (EPS) of US$0.99 in 2020. Analysts are less bullish than they were before these results, given the reduced revenue forecasts and the minor downgrade to earnings per share expectations.
Analysts made no major changes to their price target of US$24.43, suggesting the downgrades are not expected to have a long-term impact on Darling Ingredients’s valuation. That’s not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on Darling Ingredients, with the most bullish analyst valuing it at US$26.00 and the most bearish at US$21.00 per share. 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.
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. One thing stands out from these estimates, which is that analysts are forecasting Darling Ingredients to grow faster in the future than it has in the past, with revenues expected to grow 4.7%. If achieved, this would be a much better result than the 1.4% annual decline 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 2.7% next year. Although Darling Ingredients’s revenues are expected to improve, it seems that analysts are also expecting it to grow faster than the wider 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. Unfortunately analysts also downgraded their revenue estimates, although industry data suggests that Darling Ingredients’s revenues are expected 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.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. At Simply Wall St, we have a full range of analyst estimates for Darling Ingredients going out to 2021, and you can see them free on our platform here..
It might also be worth considering whether Darling Ingredients’s debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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