Stock Analysis

GWA Group Limited Just Missed Earnings - But Analysts Have Updated Their Models

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It's been a sad week for GWA Group Limited (ASX:GWA), who've watched their investment drop 13% to AU$3.24 in the week since the company reported its half-yearly result. GWA Group beat revenue expectations by 3.3%, recording sales of AU$197m. Statutory earnings per share (EPS) came in at AU$0.07, some 6.4% short of analyst estimates. 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. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.

View our latest analysis for GWA Group

ASX:GWA Earnings and Revenue Growth February 17th 2021

Following last week's earnings report, GWA Group's nine analysts are forecasting 2021 revenues to be AU$394.3m, approximately in line with the last 12 months. Statutory earnings per share are expected to reduce 3.4% to AU$0.14 in the same period. In the lead-up to this report, the analysts had been modelling revenues of AU$388.1m and earnings per share (EPS) of AU$0.14 in 2021. So it's pretty clear that, although the analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.

With the analysts reconfirming their revenue and earnings forecasts, it's surprising to see that the price target rose 14% to AU$3.40. It looks as though they previously had some doubts over whether the business would live up to their expectations. 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 GWA Group analyst has a price target of AU$4.27 per share, while the most pessimistic values it at AU$2.80. 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.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's also worth noting that the years of declining sales look to have come to an end, with the forecast for flat revenues next year. Historically, GWA Group's sales have shrunk approximately 2.3% annually over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 7.2% per year. So it's pretty clear that, although revenues are improving, GWA Group is still expected to grow slower than the industry.

The Bottom Line

The most important thing to take away is that there's been no major change in sentiment, with the analysts reconfirming that the business is performing in line with their previous earnings per share estimates. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.

With that in mind, we wouldn't be too quick to come to a conclusion on GWA Group. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for GWA Group going out to 2023, and you can see them free on our platform here..

You still need to take note of risks, for example - GWA Group has 2 warning signs we think you should be aware of.

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