Celebrations may be in order for Mercury NZ Limited (NZSE:MCY) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. The analysts have sharply increased their revenue numbers, with a view that Mercury NZ will make substantially more sales than they'd previously expected.
Following this upgrade, Mercury NZ's five analysts are forecasting 2021 revenues to be NZ$1.8b, approximately in line with the last 12 months. Statutory earnings per share are anticipated to plunge 24% to NZ$0.14 in the same period. Prior to this update, the analysts had been forecasting revenues of NZ$1.6b and earnings per share (EPS) of NZ$0.14 in 2021. The most recent forecasts are noticeably more optimistic, with a nice gain to revenue estimates and a lift to earnings per share as well.
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. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Mercury NZ, with the most bullish analyst valuing it at NZ$7.37 and the most bearish at NZ$4.00 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Mercury NZ shareholders.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Mercury NZ's past performance and to peers in the same industry. It's pretty clear that there is an expectation that Mercury NZ's revenue growth will slow down substantially, with revenues to the end of 2021 expected to display 1.6% growth on an annualised basis. This is compared to a historical growth rate of 3.9% over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue shrink 2.2% per year. Factoring in the forecast slowdown in growth, it's pretty clear that Mercury NZ is still expected to grow faster than the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. On the plus side, they also lifted their revenue estimates, and the company is expected to perform better than the wider market. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Mercury NZ.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Mercury NZ analysts - going out to 2025, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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