Sun Pharmaceutical Industries Limited (NSE:SUNPHARMA) last week reported its latest full-year results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. Revenues were in line with forecasts, at ₹328b, although statutory earnings per share came in 13% below what the analysts expected, at ₹15.69 per share. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, the current consensus from Sun Pharmaceutical Industries’ 26 analysts is for revenues of ₹355.2b in 2021, which would reflect a notable 8.2% increase on its sales over the past 12 months. Statutory earnings per share are predicted to shoot up 26% to ₹19.70. Before this earnings report, the analysts had been forecasting revenues of ₹356.0b and earnings per share (EPS) of ₹20.93 in 2021. 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 the analysts did make a minor downgrade to their earnings per share forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at ₹501, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. 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. There are some variant perceptions on Sun Pharmaceutical Industries, with the most bullish analyst valuing it at ₹620 and the most bearish at ₹365 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
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 forecasts are more or less bullish relative to other companies in the industry. It’s clear from the latest estimates that Sun Pharmaceutical Industries’ rate of growth is expected to accelerate meaningfully, with the forecast 8.2% revenue growth noticeably faster than its historical growth of 2.1%p.a. over the past five years. Other similar companies in the industry (with analyst coverage) are also forecast to grow their revenue at 9.0% per year. Factoring in the forecast acceleration in revenue, it’s pretty clear that Sun Pharmaceutical Industries is expected to grow at about the same rate as 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. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall industry. 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.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year’s earnings. We have estimates – from multiple Sun Pharmaceutical Industries analysts – going out to 2023, and you can see them free on our platform here.
That said, it’s still necessary to consider the ever-present spectre of investment risk. We’ve identified 1 warning sign with Sun Pharmaceutical Industries , and understanding this should be part of your investment process.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.