It’s been a good week for Hydro One Limited (TSE:H) shareholders, because the company has just released its latest yearly results, and the shares gained 5.1% to CA$29.30. Results were roughly in line with estimates, with revenues of CA$6.5b and statutory earnings per share of CA$1.30. Following the result, 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. We’ve gathered the most recent statutory forecasts to see whether analysts have changed their earnings models, following these results.
Taking into account the latest results, the most recent consensus for Hydro One from ten analysts is for revenues of CA$6.84b in 2020, which is a credible 5.5% increase on its sales over the past 12 months. Statutory earnings per share are expected to accumulate 8.0% to CA$1.41. Yet prior to the latest earnings, analysts had been forecasting revenues of CA$6.70b and earnings per share (EPS) of CA$1.41 in 2020. The consensus analysts don’t seem to have seen anything in these results that would have changed their view on the business, given there’s been no major change to their estimates.
With analysts reconfirming their revenue and earnings forecasts, it’s surprising to see that the price target rose 7.6% to CA$27.40. It looks as though analysts previously had some doubts over whether the business would live up to their expectations. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Hydro One, with the most bullish analyst valuing it at CA$32.00 and the most bearish at CA$22.00 per share. 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.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. One thing stands out from these estimates, which is that analysts are forecasting Hydro One to grow faster in the future than it has in the past, with revenues expected to grow 5.5%. If achieved, this would be a much better result than the 1.4% annual decline over the past five years. Compare this against analyst estimates for the wider market, which suggest that (in aggregate) market revenues are expected to grow 3.0% next year. So it looks like Hydro One is expected to grow faster than its competitors, at least for a while.
The Bottom Line
The most obvious conclusion from these results is that there’s been no major change in the business’ prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. Happily, there were no major changes to revenue forecasts, with analysts still expecting the business to grow faster than the wider market. Analysts also upgraded their price target, suggesting that analysts believe the intrinsic value of the business is likely to improve over time.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. We have forecasts for Hydro One going out to 2024, and you can see them free on our platform here.
You can also see whether Hydro One is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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