Last week saw the newest annual earnings release from Exchange Income Corporation (TSE:EIF), an important milestone in the company’s journey to build a stronger business. The result was positive overall – although revenues of CA$1.3b were in line with what analysts predicted, Exchange Income surprised by delivering a statutory profit of CA$2.49 per share, modestly greater than expected. 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. Readers will be glad to know we’ve aggregated the latest statutory forecasts to see whether analysts have changed their mind on Exchange Income after the latest results.
After the latest results, the seven analysts covering Exchange Income are now predicting revenues of CA$1.50b in 2020. If met, this would reflect a notable 12% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to expand 16% to CA$3.00. Yet prior to the latest earnings, analysts had been forecasting revenues of CA$1.51b and earnings per share (EPS) of CA$3.24 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.
The consensus price target held steady at CA$51.30, with analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. Currently, the most bullish analyst values Exchange Income at CA$55.00 per share, while the most bearish prices it at CA$45.00. The narrow spread of estimates could suggest that the business’ future is relatively easy to value, or that analysts have a clear view on its prospects.
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 Exchange Income’s revenue growth is expected to slow, with forecast 12% increase next year well below the historical 15%p.a. growth over the last five years. Juxtapose this against the other companies in the market with analyst coverage, which are forecast to grow their revenues (in aggregate) 4.9% next year. Even after the forecast slowdown in growth, it seems obvious that analysts still thinkExchange Income will grow faster than the wider market.
The Bottom Line
The most important thing to take away is…
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