Earnings Beat: Smith & Nephew plc Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Models

It's been a good week for Smith & Nephew plc (LON:SN.) shareholders, because the company has just released its latest annual results, and the shares gained 2.6% to UK£12.40. Revenues were US$5.2b, approximately in line with expectations, although statutory earnings per share (EPS) performed substantially better. EPS of US$0.60 were also better than expected, beating analyst predictions by 15%. 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. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

Check out our latest analysis for Smith & Nephew

Taking into account the latest results, the most recent consensus for Smith & Nephew from twelve analysts is for revenues of US$5.47b in 2022 which, if met, would be a satisfactory 4.9% increase on its sales over the past 12 months. Statutory earnings per share are predicted to accumulate 6.6% to US$0.64. In the lead-up to this report, the analysts had been modelling revenues of US$5.52b and earnings per share (EPS) of US$0.71 in 2022. So there's definitely been a decline in sentiment after the latest results, noting the real cut to new EPS forecasts.

The consensus price target held steady at UK£14.99, with the analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Smith & Nephew analyst has a price target of UK£18.47 per share, while the most pessimistic values it at UK£10.11. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

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. The analysts are definitely expecting Smith & Nephew's growth to accelerate, with the forecast 4.9% annualised growth to the end of 2022 ranking favourably alongside historical growth of 1.3% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 7.5% per year. So it's clear that despite the acceleration in growth, Smith & Nephew is expected to grow meaningfully slower than the industry average.

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. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Smith & Nephew analysts - going out to 2024, and you can see them free on our platform here.

It might also be worth considering whether Smith & Nephew's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.

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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.