It's been a good week for JSW Steel Limited (NSE:JSWSTEEL) shareholders, because the company has just released its latest first-quarter results, and the shares gained 2.4% to ₹215. Results look to have been somewhat negative - revenue fell 3.1% short of analyst estimates at ₹118b, although statutory losses were somewhat better. The per-share loss was ₹2.34, 29% smaller than the analysts were expecting prior to the result. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Following last week's earnings report, JSW Steel's 23 analysts are forecasting 2021 revenues to be ₹657.6b, approximately in line with the last 12 months. Statutory earnings per share are expected to dive 37% to ₹6.40 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of ₹659.9b and earnings per share (EPS) of ₹4.57 in 2021. Although the revenue estimates have not really changed, we can see there's been a great increase in earnings per share expectations, suggesting that the analysts have become more bullish after the latest result.
The consensus price target was unchanged at ₹224, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. 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. There are some variant perceptions on JSW Steel, with the most bullish analyst valuing it at ₹480 and the most bearish at ₹150 per share. We would probably assign less value to the analyst forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's pretty clear that there is an expectation that JSW Steel's revenue growth will slow down substantially, with revenues next year expected to grow 1.4%, compared to a historical growth rate of 13% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 8.0% per year. Factoring in the forecast slowdown in growth, it seems obvious that JSW Steel is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards JSW Steel 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 JSW Steel's revenues are expected to 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 in mind, we wouldn't be too quick to come to a conclusion on JSW Steel. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple JSW Steel analysts - going out to 2023, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with JSW Steel (at least 1 which is significant) , and understanding them should be part of your investment process.
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