K12 Inc. Just Beat Earnings Expectations: Here's What Analysts Think Will Happen Next

Last week, you might have seen that K12 Inc. (NYSE:LRN) released its first-quarter result to the market. The early response was not positive, with shares down 4.9% to US$27.08 in the past week. K12 beat expectations by 2.3% with revenues of US$371m. It also surprised on the earnings front, with an unexpected statutory profit of US$0.30 per share a nice improvement on the losses that the analysts forecast. 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. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

View our latest analysis for K12

After the latest results, the four analysts covering K12 are now predicting revenues of US$1.46b in 2021. If met, this would reflect a huge 26% improvement in sales compared to the last 12 months. Per-share earnings are expected to expand 11% to US$1.31. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$1.45b and earnings per share (EPS) of US$1.08 in 2021. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the massive increase in earnings per share expectations following these results.

The average the analysts price target fell 10% to US$49.33, suggesting thatthe analysts have other concerns, and the improved earnings per share outlook was not enough to allay them. 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. There are some variant perceptions on K12, with the most bullish analyst valuing it at US$60.00 and the most bearish at US$43.00 per share. This shows there is still a bit of 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 K12's growth to accelerate, with the forecast 26% growth ranking favourably alongside historical growth of 4.3% per annum over the past five years. Other similar companies in the industry (with analyst coverage) are also forecast to grow their revenue at 23% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that K12 is expected to grow at about the same rate as the wider industry.

The Bottom Line

The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards K12 following these results. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.

With that in mind, we wouldn't be too quick to come to a conclusion on K12. Long-term earnings power is much more important than next year's profits. We have forecasts for K12 going out to 2022, and you can see them free on our platform here.

That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with K12 (at least 1 which is significant) , and understanding these should be part of your investment process.

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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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