Stock Analysis

Oil and Natural Gas Corporation Limited Just Beat EPS By 21%: Here's What Analysts Think Will Happen Next

  •  Updated
NSEI:ONGC
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Oil and Natural Gas Corporation Limited (NSE:ONGC) just released its annual report and things are looking bullish. Oil and Natural Gas delivered a significant beat to revenue and earnings per share (EPS) expectations, with sales hitting ₹3.6t, some 13% above indicated. Statutory EPS were ₹12.92, an impressive 21% ahead of forecasts. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

Check out our latest analysis for Oil and Natural Gas

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NSEI:ONGC Earnings and Revenue Growth June 27th 2021

After the latest results, the 17 analysts covering Oil and Natural Gas are now predicting revenues of ₹4.04t in 2022. If met, this would reflect a notable 12% improvement in sales compared to the last 12 months. Per-share earnings are expected to jump 66% to ₹21.39. Yet prior to the latest earnings, the analysts had been anticipated revenues of ₹4.13t and earnings per share (EPS) of ₹18.33 in 2022. Although the analysts have lowered their sales forecasts, they've also made a solid gain to their earnings per share estimates, which implies there's been something of an uptick in sentiment following the latest results.

There's been no real change to the average price target of ₹137, with the lower revenue and higher earnings forecasts not expected to meaningfully impact the company's valuation over a longer timeframe. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Oil and Natural Gas analyst has a price target of ₹190 per share, while the most pessimistic values it at ₹90.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the 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. The period to the end of 2022 brings more of the same, according to the analysts, with revenue forecast to display 12% growth on an annualised basis. That is in line with its 11% annual growth over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 16% per year. So it's pretty clear that Oil and Natural Gas is expected to grow slower than similar companies in the same industry.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Oil and Natural Gas' earnings potential next year. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. Even so, earnings are more important to the intrinsic value of the business. 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.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates - from multiple Oil and Natural Gas analysts - going out to 2023, and you can see them free on our platform here.

Before you take the next step you should know about the 2 warning signs for Oil and Natural Gas that we have uncovered.

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