It’s been a good week for Deluxe Corporation (NYSE:DLX) shareholders, because the company has just released its latest quarterly results, and the shares gained 6.4% to US$51.49. Things were not great overall, with a surprise loss of US$7.49 per share on revenues of US$494m, even though analysts had been expecting a profit. 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. Readers will be glad to know we’ve aggregated the latest forecasts to see whether analysts have changed their mind on Deluxe after the latest results.
Following last week’s earnings report, Deluxe’s three analysts are forecasting 2020 revenues to be US$2.0b, approximately in line with the last 12 months. Earnings are expected to improve, with Deluxe forecast to report a profit of US$3.46 per share. Yet prior to the latest earnings, analysts had been forecasting revenues of US$2.1b and earnings per share (EPS) of US$4.49 in 2020. So there’s definitely been a decline in analyst sentiment after the latest results, noting the large cut to new EPS forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$60.00, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on 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. The most optimistic Deluxe analyst has a price target of US$80.00 per share, while the most pessimistic values it at US$40.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether analysts are more or less bullish relative to other companies in the market. We would highlight that Deluxe’s revenue growth is expected to slow, with forecast 0.8% increase next year well below the historical 4.1%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 5.9% next year. So it’s pretty clear that, while revenue growth is expected to slow down, analysts also expect the wider market to grow faster than Deluxe.
The Bottom Line
The biggest highlight of the new consensus is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Deluxe. On the plus side, there were no major changes to revenue estimates; although analyst forecasts do imply revenues expected to perform worse 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.
With that said, the long-term trajectory of the company’s earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Deluxe going out to 2021, and you can see them free on our platform here..
You can also see whether Deluxe is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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