Capital Southwest Corporation Just Beat EPS By 98%: Here's What Analysts Think Will Happen Next

A week ago, Capital Southwest Corporation (NASDAQ:CSWC) came out with a strong set of third-quarter numbers that could potentially lead to a re-rate of the stock. It was a solid earnings report, with revenues and statutory earnings per share (EPS) both coming in strong. Revenues were 14% higher than the analysts had forecast, at US$19m, while EPS were US$0.80 beating analyst models by 98%. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

View our latest analysis for Capital Southwest

Taking into account the latest results, the current consensus from Capital Southwest's five analysts is for revenues of US$75.0m in 2022, which would reflect a decent 14% increase on its sales over the past 12 months. Per-share earnings are expected to jump 120% to US$1.85. In the lead-up to this report, the analysts had been modelling revenues of US$70.2m and earnings per share (EPS) of US$1.71 in 2022. It looks like there's been a modest increase in sentiment following the latest results, withthe analysts becoming a bit more optimistic in their predictions for both revenues and earnings.

With these upgrades, we're not surprised to see that the analysts have lifted their price target 15% to US$19.50per share. 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 Capital Southwest at US$22.00 per share, while the most bearish prices it at US$16.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's pretty clear that there is an expectation that Capital Southwest's revenue growth will slow down substantially, with revenues next year expected to grow 14%, compared to a historical growth rate of 32% over the past five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 6.3% next year. Even after the forecast slowdown in growth, it seems obvious that Capital Southwest is also expected to grow faster than 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 Capital Southwest's earnings potential next year. Pleasantly, they also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow faster than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.

With that in mind, we wouldn't be too quick to come to a conclusion on Capital Southwest. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Capital Southwest analysts - going out to 2023, 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 6 warning signs with Capital Southwest (at least 3 which are potentially serious) , and understanding them 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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