Galenica AG Just Beat Earnings Expectations: Here's What Analysts Think Will Happen Next

Investors in Galenica AG (VTX:GALE) had a good week, as its shares rose 2.2% to close at CHF58.95 following the release of its yearly results. It looks like a credible result overall - although revenues of CHF3.5b were what the analysts expected, Galenica surprised by delivering a (statutory) profit of CHF3.48 per share, an impressive 30% 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Galenica after the latest results.

See our latest analysis for Galenica

Following last week's earnings report, Galenica's seven analysts are forecasting 2021 revenues to be CHF3.54b, approximately in line with the last 12 months. Statutory earnings per share are forecast to sink 14% to CHF2.98 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of CHF3.53b and earnings per share (EPS) of CHF2.88 in 2021. So the consensus seems to have become somewhat more optimistic on Galenica's earnings potential following these results.

There's been no major changes to the consensus price target of CHF67.45, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock'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. The most optimistic Galenica analyst has a price target of CHF76.00 per share, while the most pessimistic values it at CHF55.00. 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.

Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that Galenica's revenue growth is expected to slow, with the forecast 1.6% annualised growth rate until the end of 2021 being well below the historical 3.2% p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 5.9% annually. Factoring in the forecast slowdown in growth, it seems obvious that Galenica 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 Galenica's 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 Galenica's revenues are expected to perform worse than the wider industry. The consensus price target held steady at CHF67.45, with the latest estimates not enough to have an impact on their price targets.

With that in mind, we wouldn't be too quick to come to a conclusion on Galenica. Long-term earnings power is much more important than next year's profits. We have forecasts for Galenica going out to 2025, and you can see them free on our platform here.

That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Galenica (at least 1 which is concerning) , and understanding these should be part of your investment process.

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