Finning International Inc. (TSE:FTT) just released its third-quarter report and things are looking bullish. The company beat both earnings and revenue forecasts, with revenue of CA$1.6b, some 4.8% above estimates, and statutory earnings per share (EPS) coming in at CA$0.54, 130% ahead of expectations. Following the result, the 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. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Taking into account the latest results, Finning International's seven analysts currently expect revenues in 2021 to be CA$6.40b, approximately in line with the last 12 months. Per-share earnings are expected to swell 19% to CA$1.54. Yet prior to the latest earnings, the analysts had been anticipated revenues of CA$6.54b and earnings per share (EPS) of CA$1.37 in 2021. While revenue forecasts have been revised downwards, the analysts look to have become more optimistic on the company's cost base, given the substantial gain in to the earnings per share numbers.
The average price target increased 10% to CA$25.25, with the analysts signalling that the improved earnings outlook is more important to the company's valuation than its revenue. 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 Finning International analyst has a price target of CA$27.00 per share, while the most pessimistic values it at CA$23.00. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting Finning International is an easy business to forecast or the the analysts are all using similar assumptions.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Finning International's past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with the forecast 0.6% revenue decline a notable change from historical growth of 5.0% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 6.1% annually for the foreseeable future. It's pretty clear that Finning International's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Finning International's earnings potential next year. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. Even so, long term profitability is more important for the value creation process. 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 said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Finning International analysts - going out to 2022, and you can see them free on our platform here.
Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Finning International that you should be aware of.
If you decide to trade Finning International, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account.
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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.