In December 2018, Webster Financial Corporation (NYSE:WBS) announced its most recent earnings update, which showed that the company gained from a robust tailwind, leading to a double-digit earnings growth of 42%. Below is my commentary, albeit very simple and high-level, on how market analysts view Webster Financial’s earnings growth outlook over the next couple of years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Analysts’ expectations for the upcoming year seems rather subdued, with earnings rising by a single digit 9.7%. The growth outlook in the following year seems much more positive with rates generating double digit 15% compared to today’s earnings, and finally hitting US$428m by 2022.
While it is useful to be aware of the rate of growth each year relative to today’s level, it may be more valuable determining the rate at which the earnings are rising or falling on average every year. The benefit of this method is that it removes the impact of near term flucuations and accounts for the overarching direction of Webster Financial’s earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I’ve appended a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 6.3%. This means that, we can assume Webster Financial will grow its earnings by 6.3% every year for the next couple of years.
For Webster Financial, I’ve put together three essential factors you should further examine:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is WBS worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether WBS is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of WBS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.