Stock Analysis

Transcontinental Inc. Just Beat EPS By 33%: Here's What Analysts Think Will Happen Next

TSX:TCL.A
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Shareholders of Transcontinental Inc. (TSE:TCL.A) will be pleased this week, given that the stock price is up 16% to CA$25.73 following its latest quarterly results. It looks like a credible result overall - although revenues of CA$623m were what the analysts expected, Transcontinental surprised by delivering a (statutory) profit of CA$0.41 per share, an impressive 33% above what was 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. 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 Transcontinental

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TSX:TCL.A Earnings and Revenue Growth June 11th 2021

Following last week's earnings report, Transcontinental's six analysts are forecasting 2021 revenues to be CA$2.54b, approximately in line with the last 12 months. Statutory per share are forecast to be CA$1.75, approximately in line with the last 12 months. In the lead-up to this report, the analysts had been modelling revenues of CA$2.53b and earnings per share (EPS) of CA$1.61 in 2021. The analysts seems to have become more bullish on the business, judging by their new earnings per share estimates.

The analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 5.9% to CA$27.00. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Transcontinental analyst has a price target of CA$32.00 per share, while the most pessimistic values it at CA$24.00. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or thatthe analysts have a strong view on its prospects.

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. It's pretty clear that there is an expectation that Transcontinental's revenue growth will slow down substantially, with revenues to the end of 2021 expected to display 3.9% growth on an annualised basis. This is compared to a historical growth rate of 8.1% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 13% annually. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Transcontinental.

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 Transcontinental following these results. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will 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.

With that in mind, we wouldn't be too quick to come to a conclusion on Transcontinental. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Transcontinental analysts - going out to 2023, and you can see them free on our platform here.

Before you take the next step you should know about the 1 warning sign for Transcontinental that we have uncovered.

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