Compass Group PLC Just Missed Earnings - But Analysts Have Updated Their Models

Investors in Compass Group PLC (LON:CPG) had a good week, as its shares rose 3.1% to close at UK£13.93 following the release of its annual results. It looks like a pretty bad result, all things considered. Although revenues of UK£20b were in line with analyst predictions, statutory earnings fell badly short, missing estimates by 42% to hit UK£0.08 per share. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.

Check out our latest analysis for Compass Group

Taking into account the latest results, the current consensus from Compass Group's 20 analysts is for revenues of UK£20.5b in 2021, which would reflect a satisfactory 3.0% increase on its sales over the past 12 months. Per-share earnings are expected to soar 295% to UK£0.32. Before this earnings report, the analysts had been forecasting revenues of UK£20.7b and earnings per share (EPS) of UK£0.35 in 2021. The analysts seem to have become a little more negative on the business after the latest results, given the minor downgrade to their earnings per share numbers for next year.

It might be a surprise to learn that the consensus price target was broadly unchanged at UK£13.42, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Compass Group, with the most bullish analyst valuing it at UK£18.00 and the most bearish at UK£7.11 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

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. We would highlight that Compass Group's revenue growth is expected to slow, with forecast 3.0% increase next year well below the historical 5.4%p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 11% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Compass Group.

The Bottom Line

The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Compass Group's revenues are expected to perform worse than the wider industry. The consensus price target held steady at UK£13.42, with the latest estimates not enough to have an impact on their price targets.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Compass Group going out to 2025, and you can see them free on our platform here..

You should always think about risks though. Case in point, we've spotted 4 warning signs for Compass Group you should be aware of.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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