Energy Recovery, Inc. (NASDAQ:ERII) defied analyst predictions to release its annual results, which were ahead of market expectations. Results were good overall, with revenues beating analyst predictions by 2.2% to hit US$87m. Statutory earnings per share (EPS) came in at US$0.19, some 2.7% above what analysts had expected. 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. We’ve gathered the most recent statutory forecasts to see whether analysts have changed their earnings models, following these results.
Taking into account the latest results, the most recent consensus for Energy Recovery from four analysts is for revenues of US$119.3m in 2020, which is a huge 37% increase on its sales over the past 12 months. Statutory earnings per share are expected to surge 81% to US$0.36. Yet prior to the latest earnings, analysts had been forecasting revenues of US$106.4m and earnings per share (EPS) of US$0.22 in 2020. So we can see there’s been a pretty clear increase in analyst sentiment following the latest results, with both revenues and earnings per share receiving a decent lift in the latest estimates.
Despite these upgrades, analysts have not made any major changes to their price target of US$14.25, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. That’s not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Energy Recovery at US$16.00 per share, while the most bearish prices it at US$12.00. The narrow spread of estimates could suggest that the business’ future is relatively easy to value, or that analysts have a clear view on its prospects.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. It’s clear from the latest estimates that Energy Recovery’s rate of growth is expected to accelerate meaningfully, with forecast 37% revenue growth noticeably faster than its historical growth of 18%p.a. over the past five years. Compare this with other companies in the same market, which are forecast to grow their revenue 1.5% next year. Factoring in the forecast acceleration in revenue, it’s pretty clear that Energy Recovery is expected to grow much faster than its market.
The Bottom Line
The biggest takeaway for us from these new estimates is that the consensus upgraded its earnings per share estimates, showing a clear improvement in sentiment around Energy Recovery’s earnings potential next year. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow faster than the wider market. The consensus price target held steady at US$14.25, with the latest estimates not enough to have an impact on analysts’ estimated valuations.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates – from multiple Energy Recovery analysts – going out to 2021, and you can see them free on our platform here.
We also provide an overview of the Energy Recovery Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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.
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