Shareholders in Saudi Arabian Oil Company (TADAWUL:2222) may be thrilled to learn that the analysts have just delivered a major upgrade to their near-term forecasts. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with analysts modelling a real improvement in business performance. Saudi Arabian Oil has also found favour with investors, with the stock up a noteworthy 10% to ر.س42.65 over the past week. It will be interesting to see if today's upgrade is enough to propel the stock even higher.
Following the upgrade, the most recent consensus for Saudi Arabian Oil from its 14 analysts is for revenues of ر.س2.0t in 2022 which, if met, would be a huge 35% increase on its sales over the past 12 months. Per-share earnings are expected to surge 45% to ر.س2.86. Before this latest update, the analysts had been forecasting revenues of ر.س1.8t and earnings per share (EPS) of ر.س2.38 in 2022. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.
Despite these upgrades, the analysts have not made any major changes to their price target of ر.س40.44, 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. The most optimistic Saudi Arabian Oil analyst has a price target of ر.س50.00 per share, while the most pessimistic values it at ر.س30.00. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. The analysts are definitely expecting Saudi Arabian Oil's growth to accelerate, with the forecast 35% annualised growth to the end of 2022 ranking favourably alongside historical growth of 6.3% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 9.4% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that Saudi Arabian Oil is expected to grow much faster than its 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. Fortunately, analysts also upgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So Saudi Arabian Oil could be a good candidate for more research.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Saudi Arabian Oil going out to 2024, 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.
Valuation is complex, but we're helping make it simple.
Find out whether Saudi Arabian Oil is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.