As you might know, JSW Steel Limited (NSE:JSWSTEEL) just kicked off its latest second-quarter results with some very strong numbers. It was a solid earnings report, with revenues and statutory earnings per share (EPS) both coming in strong. Revenues were 11% higher than the analysts had forecast, at ₹193b, while EPS were ₹6.59 beating analyst models by 63%. 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. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following the latest results, JSW Steel's 21 analysts are now forecasting revenues of ₹709.1b in 2021. This would be a modest 7.3% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to shoot up 152% to ₹15.46. Yet prior to the latest earnings, the analysts had been anticipated revenues of ₹677.7b and earnings per share (EPS) of ₹9.55 in 2021. There's been a pretty noticeable increase in sentiment, with the analysts upgrading revenues and making a great increase in earnings per share in particular.
It will come as no surprise to learn that the analysts have increased their price target for JSW Steel 12% to ₹303on the back of these upgrades. 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 ₹500 and the most bearish at ₹156 per share. With such a wide range in price targets, analysts are almost certainly betting on widely divergent outcomes in the underlying business. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that JSW Steel's revenue growth is expected to slow, with forecast 7.3% increase next year well below the historical 12%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 13% next 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 JSW Steel.
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, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
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. We have forecasts for JSW Steel going out to 2024, and you can see them free on our platform here.
We don't want to rain on the parade too much, but we did also find 6 warning signs for JSW Steel (1 is potentially serious!) that you need to be mindful of.
If you decide to trade JSW Steel, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account.
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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email firstname.lastname@example.org.