The most recent earnings update Red Eléctrica Corporación, S.A.'s (BME:REE) released in December 2018 showed that the company benefited from a small tailwind, leading to a single-digit earnings growth of 5.2%. Below, I've laid out key numbers on how market analysts perceive Red Eléctrica Corporación's earnings growth outlook over the next couple of years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
Analysts' outlook for next year seems rather subdued, with earnings increasing by a single digit 2.8%. However, the following year seems to show a contrast, with earnings decreasing by -0.8%. This volatility continues into the final year of forecast, with earnings generating €678m.
Even though it’s helpful to understand the rate of growth year by year relative to today’s value, it may be more valuable to estimate the rate at which the business is growing on average every year. The pro of this technique is that we can get a better picture of the direction of Red Eléctrica Corporación's earnings trajectory over the long run, irrespective of near term fluctuations, be more volatile. To calculate this rate, I put a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is -0.4%. This means, we can presume Red Eléctrica Corporación will chip away at a rate of -0.4% every year for the next couple of years.
For Red Eléctrica Corporación, there are three essential aspects you should further examine:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is REE worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether REE is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of REE? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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