It’s been a good week for Mohawk Industries, Inc. (NYSE:MHK) shareholders, because the company has just released its latest annual results, and the shares gained 8.6% to US$138. It looks like a credible result overall – although revenues of US$10.0b were in line with what analysts predicted, Mohawk Industries surprised by delivering a statutory profit of US$10.30 per share, a notable 19% above expectations. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. With this in mind, we’ve gathered the latest statutory forecasts to see what analysts are expecting for next year.
Following last week’s earnings report, Mohawk Industries’s ten analysts are forecasting 2020 revenues to be US$10.0b, approximately in line with the last 12 months. Statutory earnings per share are expected to dip 3.5% to US$9.98 in the same period. In the lead-up to this report, analysts had been modelling revenues of US$10.1b and earnings per share (EPS) of US$10.46 in 2020. So it looks like there’s been a small decline in overall sentiment after the recent results – there’s been no major change to revenue estimates, but analysts did make a minor downgrade to their earnings per share forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$153, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. There’s another way to think about price targets though, and that’s to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Mohawk Industries, with the most bullish analyst valuing it at US$205 and the most bearish at US$110 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
In addition, we can look to Mohawk Industries’s past performance and see whether business is expected to improve, and if the company is expected to perform better than wider market. We would highlight that Mohawk Industries’s revenue growth is expected to slow, with forecast 0.5% increase next year well below the historical 5.7%p.a. growth over the last five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 5.6% per year. So it’s pretty clear that, while revenue growth is expected to slow down, analysts still expect the wider market to grow faster than Mohawk Industries.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Mohawk Industries. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. The consensus price target held steady at US$153, with the latest estimates not enough to have an impact on analysts’ estimated valuations.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. We have estimates – from multiple Mohawk Industries analysts – going out to 2024, and you can see them free on our platform here.
You can also see whether Mohawk Industries is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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