Analysts Just Made A Sizeable Upgrade To Their 3i Group plc (LON:III) Forecasts

Celebrations may be in order for 3i Group plc (LON:III) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. The analysts greatly increased their revenue estimates, suggesting a stark improvement in business fundamentals. The market seems to be pricing in some improvement in the business too, with the stock up 5.8% over the past week, closing at UK£18.76. Whether the upgrade is enough to drive the stock price higher is yet to be seen, however.

After the upgrade, the consensus from 3i Group's five analysts is for revenues of UK£3.4b in 2024, which would reflect a stressful 28% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to crater 27% to UK£3.45 in the same period. Previously, the analysts had been modelling revenues of UK£3.1b and earnings per share (EPS) of UK£2.48 in 2024. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.

Check out our latest analysis for 3i Group

Although the analysts have upgraded their earnings estimates, there was no change to the consensus price target of UK£21.33, suggesting that the forecast performance does not have a long term impact on the company'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. There are some variant perceptions on 3i Group, with the most bullish analyst valuing it at UK£23.90 and the most bearish at UK£14.72 per share. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the 3i Group's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 28% by the end of 2024. This indicates a significant reduction from annual growth of 31% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 11% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - 3i Group is expected to lag the wider industry.

The Bottom Line

The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. Pleasantly, analysts also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow slower than the wider market. The lack of change in the price target is puzzling, but with a serious upgrade to this year's earnings expectations, it might be time to take another look at 3i Group.

Analysts are clearly in love with 3i Group at the moment, but before diving in - you should be aware that we've identified some warning flags with the business, such as concerns around earnings quality. You can learn more, and discover the 1 other flag we've identified, for free on our platform here.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.