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Compass Group PLC Just Missed Earnings And Its EPS Looked Sad - But Analysts Have Updated Their Models

Compass Group PLC (LON:CPG) shares fell 6.1% to UK£18.83 in the week since its latest full-year results. It was not a great result overall. While revenues of UK£25b were in line with analyst predictions, earnings were less than expected, missing estimates by 15% to hit UK£0.70 per share. 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. So we collected the latest post-earnings consensus estimates to see what could be in store for next year.

View our latest analysis for Compass Group

LSE:CPG Past and Future Earnings, November 29th 2019
LSE:CPG Past and Future Earnings, November 29th 2019

Following the latest results, Compass Group's 18 analysts are now forecasting revenues of UK£26.1b in 2020. This would be a credible 5.1% improvement in sales compared to the last 12 months. Earnings per share are expected to surge 21% to UK£0.85. In the lead-up to this report, analysts had been modelling revenues of UK£26.6b and earnings per share (EPS) of UK£0.90 in 2020. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but analysts did make a minor downgrade to their earnings per share forecasts.

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It might be a surprise to learn that the consensus price target was broadly unchanged at UK£19.59, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on 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 Compass Group at UK£25.68 per share, while the most bearish prices it at UK£16.00. This shows there is still quite a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.

It can also be useful to step back and take a broader view of how analyst forecasts compare to Compass Group's performance in recent years. It's pretty clear that analysts expect Compass Group's revenue growth will slow down substantially, with revenues next year expected to grow 5.1%, compared to a historical growth rate of 8.3% over the past five years. Compare this to the other companies in this market with analyst coverage, which are forecast to grow their revenue at 4.9% per year. So it's pretty clear that, while Compass Group's revenue growth is expected to slow, it's expected to grow roughly in line with the industry.

The Bottom Line

The biggest highlight of the new consensus is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Compass Group. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall market. The consensus price target held steady at UK£19.59, with the latest estimates not enough to have an impact on analysts' estimated valuations.

Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Compass Group going out to 2024, and you can see them free on our platform here..

You can also see whether Compass Group is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.