Stock Analysis

Tecsys Inc. Just Beat EPS By 75%: Here's What Analysts Think Will Happen Next

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Tecsys Inc. (TSE:TCS) defied analyst predictions to release its second-quarter results, which were ahead of market expectations. The company beat both earnings and revenue forecasts, with revenue of CA$31m, some 5.5% above estimates, and statutory earnings per share (EPS) coming in at CA$0.14, 75% ahead of expectations. 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 Tecsys

TSX:TCS Earnings and Revenue Growth December 5th 2020

Taking into account the latest results, the current consensus from Tecsys' four analysts is for revenues of CA$118.4m in 2021, which would reflect a modest 5.2% increase on its sales over the past 12 months. Statutory earnings per share are predicted to jump 30% to CA$0.43. In the lead-up to this report, the analysts had been modelling revenues of CA$117.8m and earnings per share (EPS) of CA$0.38 in 2021. Although the revenue estimates have not really changed, we can see there's been a decent improvement in earnings per share expectations, suggesting that the analysts have become more bullish after the latest result.

The analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 39% to CA$50.25. 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 Tecsys analyst has a price target of CA$54.00 per share, while the most pessimistic values it at CA$35.00. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's pretty clear that there is an expectation that Tecsys' revenue growth will slow down substantially, with revenues next year expected to grow 5.2%, compared to a historical growth rate of 12% 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 19% next year. Factoring in the forecast slowdown in growth, it seems obvious that Tecsys is also expected to grow slower than other industry participants.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Tecsys' earnings potential next year. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Tecsys' revenues 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.

With that in mind, we wouldn't be too quick to come to a conclusion on Tecsys. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Tecsys going out to 2023, and you can see them free on our platform here..

You should always think about risks though. Case in point, we've spotted 3 warning signs for Tecsys you should be aware of.

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