Last week saw the newest half-yearly earnings release from Dechra Pharmaceuticals PLC (LON:DPH), an important milestone in the company's journey to build a stronger business. Statutory earnings per share fell badly short of expectations, coming in at UK£0.13, some 26% below analyst forecasts, although revenues were okay, approximately in line with analyst estimates at UK£249m. This is an important time for investors, as they can track a company's performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent statutory forecasts to see whether analysts have changed their earnings models, following these results.
Taking into account the latest results, the most recent consensus for Dechra Pharmaceuticals from nine analysts is for revenues of UK£524.9m in 2020, which is an okay 5.2% increase on its sales over the past 12 months. Statutory earnings per share are expected to jump 40% to UK£0.39. Before this earnings report, analysts had been forecasting revenues of UK£525.9m and earnings per share (EPS) of UK£0.44 in 2020. So there's definitely been a decline in analyst sentiment after the latest results, noting the substantial drop in new EPS forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at UK£31.15, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Dechra Pharmaceuticals, with the most bullish analyst valuing it at UK£34.50 and the most bearish at UK£25.00 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Dechra Pharmaceuticals shareholders.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. We would highlight that Dechra Pharmaceuticals's revenue growth is expected to slow, with forecast 5.2% increase next year well below the historical 20%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 6.8% next year. So it's pretty clear that, while revenue growth is expected to slow down, analysts still expect the wider market to grow faster than Dechra Pharmaceuticals.
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 Dechra Pharmaceuticals. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Dechra Pharmaceuticals's revenues are expected to perform worse than the wider market. The consensus price target held steady at UK£31.15, with the latest estimates not enough to have an impact on analysts' estimated valuations.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Dechra Pharmaceuticals going out to 2024, and you can see them free on our platform here..
It might also be worth considering whether Dechra Pharmaceuticals's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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