What Do Investors Need To Know About The Future Of Spirax-Sarco Engineering plc's (LON:SPX)?

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After Spirax-Sarco Engineering plc's (LON:SPX) recent earnings announcement in December 2018, the consensus outlook from analysts appear pessimistic, as a -18% fall in profits is expected in the upcoming year against the past 5-year average growth rate of 16%. Currently with a trailing-twelve-month profit of UK£223m, the consensus growth rate suggests that earnings will drop to UK£183m by 2020. In this article, I've outline a few earnings growth rates to give you a sense of the market sentiment for Spirax-Sarco Engineering in the longer term. For those keen to understand more about other aspects of the company, you can research its fundamentals here.

View our latest analysis for Spirax-Sarco Engineering

Exciting times ahead?

The longer term expectations from the 14 analysts of SPX is tilted towards the positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. To reduce the year-on-year volatility of analyst earnings forecast, I've inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.

By 2022, SPX's earnings should reach UK£225m, from current levels of UK£223m, resulting in an annual growth rate of 3.1%. However, if we exclude extraordinary items from net income, we see that earnings is projected to fall over time, resulting in an EPS of £2.97 in the final year of forecast compared to the current £3.03 EPS today. As revenues is expected to outpace earnings, analysts expect margins to contract from the current 19% to 17% by the end of 2022.

Next Steps:

Future outlook is only one aspect when you're building an investment case for a stock. For Spirax-Sarco Engineering, I've put together three important aspects you should look at:

1. 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.
2. Valuation: What is Spirax-Sarco Engineering 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 Spirax-Sarco Engineering is currently mispriced by the market.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Spirax-Sarco Engineering? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.