Last week, you might have seen that Renishaw plc (LON:RSW) released its half-year result to the market. The early response was not positive, with shares down 2.5% to UK£39.76 in the past week. Statutory earnings per share fell badly short of expectations, coming in at UK£0.10, some 60% below analyst forecasts, although revenues were okay, approximately in line with analyst estimates at UK£259m. 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. We've gathered the most recent statutory forecasts to see whether analysts have changed their earnings models, following these results.
Following last week's earnings report, Renishaw's nine analysts are forecasting 2020 revenues to be UK£541.1m, approximately in line with the last 12 months. Statutory earnings per share are expected to climb 17% to UK£0.76. In the lead-up to this report, analysts had been modelling revenues of UK£535.6m and earnings per share (EPS) of UK£0.81 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 small dip in their earnings per share forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at UK£33.56, 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 Renishaw at UK£45.00 per share, while the most bearish prices it at UK£27.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. It's pretty clear that analysts expect Renishaw's revenue growth will slow down substantially, with revenues next year expected to grow 0.8%, compared to a historical growth rate of 6.8% over the past five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 4.8% next year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect Renishaw to grow slower than the wider market.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Renishaw's revenues are expected to perform worse than the wider market. The consensus price target held steady at UK£33.56, 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. We have forecasts for Renishaw going out to 2022, and you can see them free on our platform here.
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