Agree Realty Corporation (NYSE:ADC): Set To Experience A Decrease In Earnings?

In September 2018, Agree Realty Corporation (NYSE:ADC) released its earnings update. Generally, analyst consensus outlook appear bearish, with earnings expected to decline by -0.6% in the upcoming year against the past 5-year average growth rate of 28%. Currently with a railing-twelve-month profit of US$58m, the consensus growth rate suggests that earnings will drop to US$58m by 2019. I will provide a brief commentary around the figures and analyst expectations in the near term. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.

View our latest analysis for Agree Realty

What can we expect from Agree Realty in the longer term?

The longer term expectations from the 5 analysts of ADC is tilted towards the positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To reduce the year-on-year volatility of analyst earnings forecast, I’ve inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.

NYSE:ADC Future Profit November 29th 18
NYSE:ADC Future Profit November 29th 18

This results in an annual growth rate of 9.6% based on the most recent earnings level of US$58m to the final forecast of US$73m by 2021. However, if we exclude extraordinary items from net income, we see that earnings is projected to fall over time, resulting in an EPS of $1.77 in the final year of forecast compared to the current $2.1 EPS today. This high rate of growth of revenue squeezes margins, as analysts predict an upcoming margin contraction from the current 50% to 37% by the end of 2021.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Agree Realty, I’ve put together three relevant factors you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is Agree Realty worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Agree Realty is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Agree Realty? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.