Shareholders in Whole Earth Brands, Inc. (NASDAQ:FREE) had a terrible week, as shares crashed 23% to US$7.06 in the week since its latest yearly results. Results were overall in line with expectations, with the company breaking even at the statutory earnings per share (EPS) level on US$494m in revenue. Following the result, the 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. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
After the latest results, the five analysts covering Whole Earth Brands are now predicting revenues of US$540.4m in 2022. If met, this would reflect a decent 9.4% improvement in sales compared to the last 12 months. Per-share earnings are expected to jump 31,893% to US$0.64. Before this earnings report, the analysts had been forecasting revenues of US$550.6m and earnings per share (EPS) of US$0.83 in 2022. The analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a pretty serious reduction to EPS estimates.
It might be a surprise to learn that the consensus price target fell 19% to US$17.00, with the analysts clearly linking lower forecast earnings to the performance of the stock price. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Whole Earth Brands analyst has a price target of US$25.00 per share, while the most pessimistic values it at US$12.00. 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.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that Whole Earth Brands' revenue growth is expected to slow, with the forecast 9.4% annualised growth rate until the end of 2022 being well below the historical 29% p.a. growth over the last three years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 3.2% per year. Even after the forecast slowdown in growth, it seems obvious that Whole Earth Brands is also expected to grow faster than the wider industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Whole Earth Brands. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Whole Earth Brands' future valuation.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Whole Earth Brands going out to 2024, and you can see them free on our platform here.
And what about risks? Every company has them, and we've spotted 4 warning signs for Whole Earth Brands (of which 1 is a bit concerning!) you should know about.
Valuation is complex, but we're helping make it simple.
Find out whether Whole Earth Brands is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.