Encore Wire Corporation (NASDAQ:WIRE) shareholders are probably feeling a little disappointed, since its shares fell 3.5% to US$45.94 in the week after its latest quarterly results. It looks like a credible result overall - although revenues of US$340m were what the analysts expected, Encore Wire surprised by delivering a (statutory) profit of US$1.02 per share, an impressive 37% above what was forecast. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. 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 current consensus from Encore Wire's dual analysts is for revenues of US$1.30b in 2021, which would reflect a notable 8.7% increase on its sales over the past 12 months. Statutory earnings per share are expected to fall 16% to US$2.55 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$1.26b and earnings per share (EPS) of US$3.18 in 2021. So it's pretty clear the analysts have mixed opinions on Encore Wire after the latest results; even though they upped their revenue numbers, it came at the cost of a substantial drop in per-share earnings expectations.
There's been no major changes to the price target of US$59.00, suggesting that the impact of higher forecast sales and lower earnings won't result in a meaningful change to the business' valuation.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Encore Wire's past performance and to peers in the same industry. The analysts are definitely expecting Encore Wire's growth to accelerate, with the forecast 8.7% growth ranking favourably alongside historical growth of 6.1% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 7.4% next year. Factoring in the forecast acceleration in revenue, it's pretty clear that Encore Wire is expected to grow at about the same rate as the wider industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. There was also an upgrade to revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider industry. 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.
With that in mind, we wouldn't be too quick to come to a conclusion on Encore Wire. Long-term earnings power is much more important than next year's profits. At least one analyst has provided forecasts out to 2021, which can be seen for free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Encore Wire , and understanding this should be part of your investment process.
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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