The analysts might have been a bit too bullish on EFG International AG (VTX:EFGN), given that the company fell short of expectations when it released its half-year results last week. EFG International missed earnings this time around, with CHF564m revenue coming in 3.7% below what the analysts had modelled. Statutory earnings per share (EPS) of CHF0.31 also fell short of expectations by 11%. Following the result, the 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. With this in mind, we’ve gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Following last week’s earnings report, EFG International’s five analysts are forecasting 2020 revenues to be CHF1.16b, approximately in line with the last 12 months. Per-share earnings are expected to grow 12% to CHF0.37. In the lead-up to this report, the analysts had been modelling revenues of CHF1.18b and earnings per share (EPS) of CHF0.50 in 2020. The analysts seem less optimistic after the recent results, reducing their sales forecasts and making a pretty serious reduction to earnings per share numbers.
The average price target climbed 15% to CHF6.61despite the reduced earnings forecasts, suggesting that this earnings impact could be a positive for the stock, once it passes. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values EFG International at CHF8.40 per share, while the most bearish prices it at CHF5.50. This shows there is still a bit of diversity in estimates, but analysts don’t appear to be totally split on the stock as though it might be a success or failure situation.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the EFG International’s past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 0.8%, a significant reduction from annual growth of 12% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 1.7% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – EFG International is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that in mind, we wouldn’t be too quick to come to a conclusion on EFG International. Long-term earnings power is much more important than next year’s profits. We have estimates – from multiple EFG International analysts – going out to 2022, and you can see them free on our platform here.
And what about risks? Every company has them, and we’ve spotted 2 warning signs for EFG International you should know about.
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