It’s been a pretty great week for InvoCare Limited (ASX:IVC) shareholders, with its shares surging 12% to AU$14.92 in the week since its latest full-year results. The result was fairly weak overall, with revenues of AU$500m being 3.6% less than what analysts had been modelling. 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. With this in mind, we’ve gathered the latest statutory forecasts to see what analysts are expecting for next year.
After the latest results, the seven analysts covering InvoCare are now predicting revenues of AU$533.0m in 2020. If met, this would reflect a reasonable 6.5% improvement in sales compared to the last 12 months. Statutory per-share earnings are expected to be AU$0.55, roughly flat on the last 12 months. Before this earnings report, analysts had been forecasting revenues of AU$552.6m and earnings per share (EPS) of AU$0.55 in 2020. So it looks like analysts have become a bit less optimistic after the latest results announcement, with revenues expected to fall even as the company is expected to maintain EPS.
The consensus price target rose 5.2% to AU$14.66, with analysts apparently satisfied with the business performance despite lower revenue forecasts. There’s another way to think about price targets though, and that’s to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic InvoCare analyst has a price target of AU$17.00 per share, while the most pessimistic values it at AU$12.35. As you can see, analysts are not all in agreement on the stock’s future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
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. Analysts are definitely expecting InvoCare’s growth to accelerate, with the forecast 6.5% growth ranking favourably alongside historical growth of 3.1% per annum 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 12% per year. It seems obvious that, while the future growth outlook is brighter than the recent past, analysts also expect InvoCare to grow slower than the wider market.
The Bottom Line
The most obvious conclusion from these results is that there’s been no major change in the business’ prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. Unfortunately, analysts also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider market. Even so, earnings per share are more important to the intrinsic value of the business. Still, earnings are more important to the long-term value of the business. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.
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 InvoCare going out to 2022, and you can see them free on our platform here..
It might also be worth considering whether InvoCare’s debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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