New Forecasts: Here's What Analysts Think The Future Holds For Kumba Iron Ore Limited (JSE:KIO)

Shareholders in Kumba Iron Ore Limited (JSE:KIO) may be thrilled to learn that the analysts have just delivered a major upgrade to their near-term forecasts. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with analysts modelling a real improvement in business performance. The stock price has risen 9.9% to R779 over the past week, suggesting investors are becoming more optimistic. Whether the upgrade is enough to drive the stock price higher is yet to be seen, however.

After this upgrade, Kumba Iron Ore's seven analysts are now forecasting revenues of R128b in 2021. This would be a decent 14% improvement in sales compared to the last 12 months. Per-share earnings are expected to ascend 17% to R137. Before this latest update, the analysts had been forecasting revenues of R118b and earnings per share (EPS) of R121 in 2021. There's been a pretty noticeable increase in sentiment, with the analysts upgrading revenues and making a nice increase in earnings per share in particular.

View our latest analysis for Kumba Iron Ore

It will come as no surprise to learn that the analysts have increased their price target for Kumba Iron Ore 5.3% to R606 on the back of these upgrades. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Kumba Iron Ore, with the most bullish analyst valuing it at R1,000 and the most bearish at R445 per share. 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.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. The analysts are definitely expecting Kumba Iron Ore's growth to accelerate, with the forecast 30% annualised growth to the end of 2021 ranking favourably alongside historical growth of 20% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue shrink 3.8% per year. So it's clear with the acceleration in growth, Kumba Iron Ore is expected to grow meaningfully faster than the wider industry.

The Bottom Line

The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. Fortunately, they also upgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider market. With a serious upgrade to expectations and a rising price target, it might be time to take another look at Kumba Iron Ore.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Kumba Iron Ore going out to 2023, and you can see them free on our platform here..

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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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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