Earnings Beat: WEG S.A. Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Models

WEG S.A. (BVMF:WEGE3) investors will be delighted, with the company turning in some strong numbers with its latest results. WEG delivered a significant beat to revenue and earnings per share (EPS) expectations, with sales hitting R$4.1b, some 17% above indicated. Statutory EPS were R$0.25, an impressive 26% ahead of forecasts. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.

View our latest analysis for WEG

Following the latest results, WEG's eleven analysts are now forecasting revenues of R$16.0b in 2020. This would be a credible 7.6% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to shrink 2.9% to R$0.87 in the same period. In the lead-up to this report, the analysts had been modelling revenues of R$15.1b and earnings per share (EPS) of R$0.83 in 2020. It looks like there's been a modest increase in sentiment following the latest results, withthe analysts becoming a bit more optimistic in their predictions for both revenues and earnings.

With these upgrades, we're not surprised to see that the analysts have lifted their price target 9.2% to R$43.77per share. 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. The most optimistic WEG analyst has a price target of R$75.00 per share, while the most pessimistic values it at R$18.50. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how analysts think this business will perform. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that WEG's revenue growth is expected to slow, with forecast 7.6% increase next year well below the historical 9.8%p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 9.7% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than WEG.

The Bottom Line

The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards WEG following these results. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for WEG going out to 2023, and you can see them free on our platform here.

We don't want to rain on the parade too much, but we did also find 1 warning sign for WEG that you need to be mindful of.

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