Contact Energy Limited Just Beat Revenue Estimates By 7.6%

Contact Energy Limited (NZSE:CEN) shareholders are probably feeling a little disappointed, since its shares fell 8.4% to NZ$7.05 in the week after its latest half-year results. Results overall were respectable, with statutory earnings of NZ$0.17 per share roughly in line with what the analysts had forecast. Revenues of NZ$1.1b came in 7.6% ahead of analyst predictions. 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Contact Energy after the latest results.

Check out our latest analysis for Contact Energy

Taking into account the latest results, the most recent consensus for Contact Energy from six analysts is for revenues of NZ$2.19b in 2021 which, if met, would be a modest 4.2% increase on its sales over the past 12 months. Statutory earnings per share are forecast to reduce 9.3% to NZ$0.18 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of NZ$2.16b and earnings per share (EPS) of NZ$0.18 in 2021. So it's pretty clear that, although the analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.

It will come as no surprise then, to learn that the consensus price target is largely unchanged at NZ$8.10. 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. Currently, the most bullish analyst values Contact Energy at NZ$9.52 per share, while the most bearish prices it at NZ$6.60. 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.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. The analysts are definitely expecting Contact Energy's growth to accelerate, with the forecast 4.2% growth ranking favourably alongside historical growth of 0.4% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue shrink 1.7% per year. It seems obvious that as part of the brighter growth outlook, Contact Energy is expected to grow faster than the wider industry.

The Bottom Line

The most important thing to take away is that there's been no major change in sentiment, with the analysts reconfirming that the business is performing in line with their previous earnings per share estimates. Fortunately, they also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations. Their estimates also suggest that Contact Energy's revenues are expected to perform better than the wider industry. The consensus price target held steady at NZ$8.10, with the latest estimates not enough to have an impact on their price targets.

With that in mind, we wouldn't be too quick to come to a conclusion on Contact Energy. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Contact Energy going out to 2023, and you can see them free on our platform here..

You still need to take note of risks, for example - Contact Energy has 3 warning signs (and 1 which is potentially serious) we think you should know about.

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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.
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