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G4S plc Reported A Surprise Loss, And Analysts Have Updated Their Forecasts

Simply Wall St

There's been a major selloff in G4S plc (LON:GFS) shares in the week since it released its full-year report, with the stock down 37% to UK£0.93. Revenues came in at UK£7.8b, in line with estimates, while G4S reported a statutory loss of UK£0.059 per share, well short of prior analyst forecasts for a profit. 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 statutory consensus estimates to see what could be in store for next year.

View our latest analysis for G4S

LSE:GFS Past and Future Earnings, March 14th 2020

After the latest results, the consensus from G4S's eleven analysts is for revenues of UK£7.52b in 2020, which would reflect a measurable 3.1% decline in sales compared to the last year of performance. G4S is also expected to turn profitable, with statutory earnings of UK£0.22 per share. Before this earnings report, analysts had been forecasting revenues of UK£7.89b and earnings per share (EPS) of UK£0.18 in 2020. While revenue forecasts have been revised downwards, analysts look to have become more optimistic on the company's earnings power, given the great increase in to earnings per share forecasts.

Analysts have cut their price target 13% to UK£2.00 per share, suggesting that the declining revenue was a more crucial indicator than the expected improvement in earnings. 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. There are some variant perceptions on G4S, with the most bullish analyst valuing it at UK£3.00 and the most bearish at UK£1.10 per share. 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.

Further, we can compare these estimates to past performance, and see how G4S forecasts compare to the wider market's forecast performance. These estimates imply that sales are expected to slow, with a forecast revenue decline of 3.1% a significant reduction from annual growth of 2.8% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 4.4% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - analysts also expect G4S to grow slower than the wider market.

The Bottom Line

The biggest takeaway for us from these new estimates is that the consensus upgraded its earnings per share estimates, showing a clear improvement in sentiment around G4S's earnings potential next year. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. Even so, earnings per share are more important to the intrinsic value of the business. The consensus price target fell measurably, with analysts seemingly not reassured by the latest results, leading to a lower estimate of G4S's future valuation.

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 G4S going out to 2022, and you can see them free on our platform here..

It might also be worth considering whether G4S's debt load is appropriate, using our debt analysis tools on the Simply Wall St 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.

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