There's been a notable change in appetite for Capita plc (LON:CPI) shares in the week since its interim report, with the stock down 12% to UK£0.26. Results look mixed - while revenue fell marginally short of analyst estimates at UK£1.5b, statutory earnings were in line with expectations, at UK£0.13 per share. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.
Taking into account the latest results, the seven analysts covering Capita provided consensus estimates of UK£2.88b revenue in 2022, which would reflect a perceptible 6.6% decline on its sales over the past 12 months. Capita is also expected to turn profitable, with statutory earnings of UK£0.007 per share. Yet prior to the latest earnings, the analysts had been anticipated revenues of UK£2.96b and earnings per share (EPS) of UK£0.009 in 2022. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a pretty serious reduction to earnings per share estimates.
The analysts made no major changes to their price target of UK£0.39, suggesting the downgrades are not expected to have a long-term impact on Capita's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Capita at UK£0.50 per share, while the most bearish prices it at UK£0.22. 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.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. Over the past five years, revenues have declined around 7.2% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for an annualised 13% decline in revenue until the end of 2022. Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 15% annually. So while a broad number of companies are forecast to grow, unfortunately Capita is expected to see its sales affected worse than other companies in the industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Capita. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Capita going out to 2024, and you can see them free on our platform here.
It might also be worth considering whether Capita's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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