Western Areas Limited (ASX:WSA) last week reported its latest half-year results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. Sales of AU$156m surpassed estimates by 4.0%, although statutory earnings per share missed badly, coming in 26% below expectations at AU$0.089 per share. 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. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following the latest results, Western Areas’s 14 analysts are now forecasting revenues of AU$354.1m in 2020. This would be a notable 18% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to jump 63% to AU$0.24. Yet prior to the latest earnings, analysts had been forecasting revenues of AU$345.1m and earnings per share (EPS) of AU$0.26 in 2020. Overall it looks as though analysts were a bit mixed on the latest results. Although there was a a notable to revenue, the consensus also made a minor downgrade to to its earnings per share forecasts.
The consensus price target was unchanged at AU$2.95, suggesting the business is performing roughly in line with expectations, despite some adjustments to profit and revenue forecasts. The consensus price target just an average of individual analyst targets, so – considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Western Areas at AU$3.60 per share, while the most bearish prices it at AU$2.50. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Western Areas shareholders.
Further, we can compare these estimates to past performance, and see how Western Areas forecasts compare to the wider market’s forecast performance. For example, we noticed that Western Areas’s rate of growth is expected to accelerate meaningfully, with revenues forecast to grow at 18%, well above its historical decline of 1.9% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the market are forecast to see their revenue grow 1.2% per year. Although Western Areas’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 biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Western Areas. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues 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.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have forecasts for Western Areas going out to 2023, and you can see them free on our platform here.
We also provide an overview of the Western Areas Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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