A week ago, Avantor, Inc. (NYSE:AVTR) came out with a strong set of first-quarter numbers that could potentially lead to a re-rate of the stock. It was overall a positive result, with revenues beating expectations by 4.9% to hit US$1.8b. Avantor also reported a statutory profit of US$0.25, which was an impressive 42% above what the analysts had forecast. 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 thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Following the latest results, Avantor's 18 analysts are now forecasting revenues of US$6.96b in 2021. This would be a modest 4.6% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to surge 169% to US$0.79. In the lead-up to this report, the analysts had been modelling revenues of US$6.96b and earnings per share (EPS) of US$0.79 in 2021. The consensus analysts don't seem to have seen anything in these results that would have changed their view on the business, given there's been no major change to their estimates.
The analysts reconfirmed their price target of US$36.32, showing that the business is executing well and in line with expectations. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Avantor, with the most bullish analyst valuing it at US$40.00 and the most bearish at US$28.00 per share. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that Avantor's revenue growth is expected to slow, with the forecast 6.1% annualised growth rate until the end of 2021 being well below the historical 9.6% growth over the last year. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 8.8% per year. Factoring in the forecast slowdown in growth, it seems obvious that Avantor is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing to take away is that there's been no major change in sentiment, with the analysts reconfirming that the business is performing in line with their previous earnings per share estimates. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. The consensus price target held steady at US$36.32, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn't be too quick to come to a conclusion on Avantor. Long-term earnings power is much more important than next year's profits. We have forecasts for Avantor going out to 2023, and you can see them free on our platform here.
And what about risks? Every company has them, and we've spotted 3 warning signs for Avantor (of which 1 is a bit unpleasant!) you should know about.
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What are the risks and opportunities for Avantor?
Price-To-Earnings ratio (26.5x) is below the Life Sciences industry average (31.1x)
Earnings are forecast to grow 12.26% per year
Earnings grew by 28.5% over the past year
Debt is not well covered by operating cash flow
Shareholders have been diluted in the past year
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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Avantor, Inc. provides products and services to customers in biopharma, healthcare, education and government, advanced technologies, and applied materials industries in the Americas, Europe, Asia, the Middle East, and Africa.
Proven track record with mediocre balance sheet.