Cipla Limited Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Predictions
Cipla Limited (NSE:CIPLA) defied analyst predictions to release its quarterly results, which were ahead of market expectations. The company beat expectations with revenues of ₹44b arriving 4.3% ahead of forecasts. Earnings per share (EPS) were ₹5.84, 5.3% ahead of estimates. Following the result, 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 thought readers would find it interesting to see analysts' latest post-earnings forecasts for next year.
View our latest analysis for Cipla
Taking into account the latest results, the latest consensus from Cipla's 27 analysts is for revenues of ₹171b in 2020, which would reflect a credible 2.0% improvement in sales compared to the last 12 months. Earnings per share are expected to accumulate 7.6% to ₹22.01. Before this earnings report, analysts had been forecasting revenues of ₹172b and earnings per share (EPS) of ₹21.42 in 2020. Analysts seem to have become more bullish on the business, judging by their new earnings per share estimates.
There's been no major changes to the consensus price target of ₹531, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock'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. The most optimistic Cipla analyst has a price target of ₹625 per share, while the most pessimistic values it at ₹439. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how analyst forecasts compare, both to the Cipla's past performance and to peers in the same market. We would highlight that Cipla's revenue growth is expected to slow, with forecast 2.0% increase next year well below the historical 7.8%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 10% next year. Factoring in the forecast slowdown in growth, it seems obvious that analysts are also expecting Cipla to grow slower than the wider market.
The Bottom Line
The most important thing to take away from this is that analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Cipla following these results. On the plus side, there were no major changes to revenue estimates; although analyst forecasts do imply revenues expected to perform worse than the wider market. 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.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Cipla analysts - going out to 2022, and you can see them free on our platform here.
You can also view our analysis of Cipla's balance sheet, and whether we think Cipla is carrying too much debt, for free on our platform here.
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