Magic Software Enterprises Ltd. Full-Year Results: Here's What Analysts Are Forecasting For Next Year

It's been a sad week for Magic Software Enterprises Ltd. (NASDAQ:MGIC), who've watched their investment drop 11% to US$8.66 in the week since the company reported its annual result. Magic Software Enterprises beat revenue expectations by 2.4%, recording sales of US$326m. Statutory earnings per share (EPS) came in at US$0.41, some 4.7% short of analyst estimates. Earnings are an important time for investors, as they can track a company's performance, look at what top analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see analysts' latest (statutory) post-earnings forecasts for next year.

See our latest analysis for Magic Software Enterprises

Following the latest results, Magic Software Enterprises's one analyst are now forecasting revenues of US$361.3m in 2020. This would be a notable 11% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to shoot up 28% to US$0.53. In the lead-up to this report, analysts had been modelling revenues of US$352.0m and earnings per share (EPS) of US$0.55 in 2020. So it's pretty clear consensus is mixed on Magic Software Enterprises after the latest results; while analysts lifted revenue numbers, they also administered a minor downgrade to per-share earnings expectations.

There's been no major changes to an analyst price target of US$11.50, suggesting that the impact of higher forecast sales and lower earnings won't result in a meaningful change to the business' valuation.

It can also be useful to step back and take a broader view of how analyst forecasts compare to Magic Software Enterprises's performance in recent years. It's pretty clear that analysts expect Magic Software Enterprises's revenue growth will slow down substantially, with revenues next year expected to grow 11%, compared to a historical growth rate of 15% over the past five years. Juxtapose this against the other companies in the market with analyst coverage, which are forecast to grow their revenues (in aggregate) 12% next year. Factoring in the forecast slowdown in growth, it looks like analysts are expecting Magic Software Enterprises to grow at about the same rate as the wider market.

The Bottom Line

The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Magic Software Enterprises. There was also an upgrade to revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider market. The consensus price target held steady at US$11.50, with the latest estimates not enough to have an impact on analysts' estimated valuations.

With that in mind, we wouldn't be too quick to come to a conclusion on Magic Software Enterprises. Long-term earnings power is much more important than next year's profits. At least one analyst has provided forecasts out to 2021, which can be seen for free on our platform here.

Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.

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