Analysts Just Made A Substantial Upgrade To Their TMX Group Limited (TSE:X) Forecasts

TMX Group Limited (TSE:X) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's statutory forecasts. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with the analysts modelling a real improvement in business performance. The market seems to be pricing in some improvement in the business too, with the stock up 5.2% over the past week, closing at CA$134. It will be interesting to see if this latest upgrade is enough to kickstart further buying interest in the stock.

After this upgrade, TMX Group's seven analysts are now forecasting revenues of CA$1.2b in 2022. This would be a notable 8.1% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to increase 3.6% to CA$9.45. Previously, the analysts had been modelling revenues of CA$1.0b and earnings per share (EPS) of CA$7.33 in 2022. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.

See our latest analysis for TMX Group

Although the analysts have upgraded their earnings estimates, there was no change to the consensus price target of CA$151, suggesting that the forecast performance does not have a long term impact on the company's valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values TMX Group at CA$165 per share, while the most bearish prices it at CA$140. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting TMX Group is an easy business to forecast or the underlying assumptions are obvious.

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 clear from the latest estimates that TMX Group's rate of growth is expected to accelerate meaningfully, with the forecast 11% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 7.3% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 2.1% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that TMX Group is expected to grow much faster than its industry.

The Bottom Line

The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So TMX Group could be a good candidate for more research.

Using these estimates as a starting point, we've run a discounted cash flow calculation (DCF) on TMX Group that suggests the company could be somewhat undervalued. For more information, you can click through to our platform to learn more about our valuation approach.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.