Earnings Beat: McGrath RentCorp Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Models

By
Simply Wall St
Published
November 02, 2020
NasdaqGS:MGRC

McGrath RentCorp (NASDAQ:MGRC) investors will be delighted, with the company turning in some strong numbers with its latest results. McGrath RentCorp beat earnings, with revenues hitting US$156m, ahead of expectations, and statutory earnings per share outperforming analyst reckonings by a solid 12%. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on McGrath RentCorp after the latest results.

Check out our latest analysis for McGrath RentCorp

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NasdaqGS:MGRC Earnings and Revenue Growth November 2nd 2020

Following last week's earnings report, McGrath RentCorp's three analysts are forecasting 2021 revenues to be US$579.3m, approximately in line with the last 12 months. Statutory earnings per share are predicted to increase 2.6% to US$4.12. In the lead-up to this report, the analysts had been modelling revenues of US$580.1m and earnings per share (EPS) of US$4.10 in 2021. So it's pretty clear that, although the analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.

There were no changes to revenue or earnings estimates or the price target of US$76.67, suggesting that the company has met expectations in its recent result. 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 McGrath RentCorp, with the most bullish analyst valuing it at US$87.00 and the most bearish at US$69.00 per share. This is a very narrow spread of estimates, implying either that McGrath RentCorp is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that McGrath RentCorp's revenue growth is expected to slow, with forecast 1.5% increase next year well below the historical 8.3%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 6.1% next year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than McGrath RentCorp.

The Bottom Line

The most important thing to take away is that there's been no major change in sentiment, with the analysts reconfirming that the business is performing in line with their previous earnings per share estimates. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that McGrath RentCorp's revenues are expected to perform worse 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 McGrath RentCorp. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple McGrath RentCorp analysts - going out to 2024, and you can see them free on our platform here.

Before you take the next step you should know about the 1 warning sign for McGrath RentCorp that we have uncovered.

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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. 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.
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