Mercury NZ Limited Beat Revenue Forecasts By 39%: Here's What Analysts Are Forecasting Next

Last week, you might have seen that Mercury NZ Limited (NZSE:MCY) released its half-year result to the market. The early response was not positive, with shares down 8.5% to NZ$6.00 in the past week. Revenue of NZ$944m beat expectations by an impressive 39%, while statutory earnings per share (EPS) were NZ$0.15, in line with estimates. 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. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

Check out our latest analysis for Mercury NZ

Following last week's earnings report, Mercury NZ's five analysts are forecasting 2021 revenues to be NZ$1.80b, approximately in line with the last 12 months. Statutory earnings per share are forecast to shrink 4.1% to NZ$0.15 in the same period. In the lead-up to this report, the analysts had been modelling revenues of NZ$1.63b and earnings per share (EPS) of NZ$0.14 in 2021. Sentiment certainly seems to have improved after the latest results, with a decent improvement in revenue and a slight bump in earnings per share estimates.

Despite these upgrades,the analysts have not made any major changes to their price target of NZ$5.69, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Mercury NZ at NZ$7.37 per share, while the most bearish prices it at NZ$4.00. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

Of course, another way to look at these forecasts is to place them into context against the industry itself. It's also worth noting that the years of declining sales look to have come to an end, with the forecast for flat revenues next year. Historically, Mercury NZ's sales have shrunk approximately 12% annually over the past year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue shrink 1.7% per year. Not only are Mercury NZ's revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.

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 Mercury NZ following these results. On the plus side, they also lifted their revenue estimates, and the company is expected to perform better 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 Mercury NZ. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Mercury NZ 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 Mercury NZ (1 can't be ignored!) that we have uncovered.

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