What Should You Know About Caltex Australia Limited’s (ASX:CTX) Future?

As Caltex Australia Limited (ASX:CTX) announced its recent earnings release on 31 December 2018, analyst forecasts appear to be bearish, with profits predicted to drop by -11% next year compared with the past 5-year average growth rate of 15%. Currently with a trailing-twelve-month profit of AU$560m, the consensus growth rate suggests that earnings will drop to AU$498m by 2020. In this article, I’ve outline a few earnings growth rates to give you a sense of the market sentiment for Caltex Australia in the longer term. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.

Check out our latest analysis for Caltex Australia

How will Caltex Australia perform in the near future?

Longer term expectations from the 11 analysts covering CTX’s stock is one of positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. I’ve plotted out each year’s earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of CTX’s earnings growth over these next few years.

ASX:CTX Past and Future Earnings, March 20th 2019
ASX:CTX Past and Future Earnings, March 20th 2019

From the current net income level of AU$560m and the final forecast of AU$581m by 2022, the annual rate of growth for CTX’s earnings is 2.5%. EPS reaches A$2.29 in the final year of forecast compared to the current A$2.15 EPS today. Analysts are predicting this high revenue growth to squeeze profit margins over time, from 2.6% to 2.4% by the end of 2022.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Caltex Australia, I’ve compiled three key aspects you should further research:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is Caltex Australia worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Caltex Australia is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Caltex Australia? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.