Service Corporation International (NYSE:SCI) just released its third-quarter report and things are looking bullish. It was a solid earnings report, with revenues and statutory earnings per share (EPS) both coming in strong. Revenues were 15% higher than the analysts had forecast, at US$918m, while EPS were US$0.72 beating analyst models by 70%. The 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 thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the three analysts covering Service Corporation International provided consensus estimates of US$3.28b revenue in 2021, which would reflect a perceptible 3.4% decline on its sales over the past 12 months. Statutory earnings per share are expected to drop 15% to US$2.19 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$3.24b and earnings per share (EPS) of US$2.04 in 2021. So the consensus seems to have become somewhat more optimistic on Service Corporation International's earnings potential following these results.
There's been no major changes to the consensus price target of US$50.33, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock's valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Service Corporation International, with the most bullish analyst valuing it at US$53.00 and the most bearish at US$48.00 per share. With such a narrow range of valuations, the analysts apparently share similar views on what they think the business is worth.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 3.4% revenue decline a notable change from historical growth of 2.2% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 23% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Service Corporation International is expected to lag the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Service Corporation International's earnings potential next year. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will 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 Service Corporation International. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Service Corporation International going out to 2022, and you can see them free on our platform here..
It is also worth noting that we have found 1 warning sign for Service Corporation International that you need to take into consideration.
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