Shareholders of Novozymes A/S (CPH:NZYM B) will be pleased this week, given that the stock price is up 10% to ø355 following its latest annual results. Novozymes reported ø14b in revenue, roughly in line with analyst forecasts, although statutory earnings per share (EPS) of ø11.01 beat expectations, being 2.6% higher than what analysts expected. 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.
Taking into account the latest results, the most recent consensus for Novozymes from 17 analysts is for revenues of ø14.9b in 2020, which is a modest 3.6% increase on its sales over the past 12 months. Statutory per share are forecast to be ø10.97, approximately in line with the last 12 months. In the lead-up to this report, analysts had been modelling revenues of ø15.0b and earnings per share (EPS) of ø11.20 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 ø321, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. 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. The most optimistic Novozymes analyst has a price target of ø410 per share, while the most pessimistic values it at ø275. 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.
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. Analysts are definitely expecting Novozymes's growth to accelerate, with the forecast 3.6% growth ranking favourably alongside historical growth of 1.9% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 4.4% per year. It seems obvious that, while the future growth outlook is brighter than the recent past, analysts also expect Novozymes 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 Novozymes's revenues are expected to perform worse than the wider market. 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 Novozymes. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Novozymes analysts - going out to 2024, and you can see them free on our platform here.
You can also view our analysis of Novozymes's balance sheet, and whether we think Novozymes is carrying too much debt, for free on our platform here.
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