Results: Héroux-Devtek Inc. Exceeded Expectations And The Consensus Has Updated Its Estimates

By
Simply Wall St
Published
November 18, 2020
TSX:HRX

Héroux-Devtek Inc. (TSE:HRX) just released its quarterly report and things are looking bullish. It was overall a positive result, with revenues beating expectations by 6.6% to hit CA$137m. Héroux-Devtek also reported a statutory profit of CA$0.11, which was an impressive 47% above what the analysts had forecast. 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've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

View our latest analysis for Héroux-Devtek

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TSX:HRX Earnings and Revenue Growth November 18th 2020

Taking into account the latest results, the six analysts covering Héroux-Devtek provided consensus estimates of CA$550.9m revenue in 2021, which would reflect a perceptible 6.5% decline on its sales over the past 12 months. Earnings are expected to improve, with Héroux-Devtek forecast to report a statutory profit of CA$0.43 per share. Before this earnings report, the analysts had been forecasting revenues of CA$532.8m and earnings per share (EPS) of CA$0.34 in 2021. There's been a pretty noticeable increase in sentiment, with the analysts upgrading revenues and making a sizeable expansion in earnings per share in particular.

With these upgrades, we're not surprised to see that the analysts have lifted their price target 17% to CA$17.17per 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. There are some variant perceptions on Héroux-Devtek, with the most bullish analyst valuing it at CA$20.00 and the most bearish at CA$12.50 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Héroux-Devtek's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 6.5%, a significant reduction from annual growth of 10% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 8.2% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Héroux-Devtek is expected to lag the wider industry.

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 Héroux-Devtek following these results. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to 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 said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Héroux-Devtek analysts - going out to 2023, and you can see them free on our platform here.

And what about risks? Every company has them, and we've spotted 2 warning signs for Héroux-Devtek (of which 1 can't be ignored!) you should know about.

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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.
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