Naspers Limited (JSE:NPN) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with the analysts modelling a real improvement in business performance.
Following the upgrade, the current consensus from Naspers' ten analysts is for revenues of US$5.6b in 2021 which - if met - would reflect a meaningful 16% increase on its sales over the past 12 months. Statutory earnings per share are presumed to increase 5.5% to US$7.37. Before this latest update, the analysts had been forecasting revenues of US$4.5b and earnings per share (EPS) of US$6.58 in 2021. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.
Despite these upgrades, the analysts have not made any major changes to their price target of US$299, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Naspers at US$5,830 per share, while the most bearish prices it at US$3,456. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. One thing stands out from these estimates, which is that Naspers is forecast to grow faster in the future than it has in the past, with revenues expected to grow 16%. If achieved, this would be a much better result than the 14% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 19% per year. So it looks like Naspers is expected to grow at about the same rate as 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. They also upgraded their revenue forecasts, although the latest estimates suggest that Naspers will grow in line with the overall market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So Naspers could be a good candidate for more research.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Naspers analysts - going out to 2024, 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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