Canadian Utilities Limited (TSE:CU) just released its quarterly report and things are looking bullish. The company beat both earnings and revenue forecasts, with revenue of CA$1.1b, some 8.7% above estimates, and statutory earnings per share (EPS) coming in at CA$1.01, 27% ahead of expectations. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Following the recent earnings report, the consensus from six analysts covering Canadian Utilities is for revenues of CA$3.94b in 2023, implying a small 3.1% decline in sales compared to the last 12 months. Statutory per share are forecast to be CA$2.28, approximately in line with the last 12 months. Yet prior to the latest earnings, the analysts had been anticipated revenues of CA$3.96b and earnings per share (EPS) of CA$2.33 in 2023. 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 the analysts did make a minor downgrade to their earnings per share forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at CA$39.56, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. 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. The most optimistic Canadian Utilities analyst has a price target of CA$43.00 per share, while the most pessimistic values it at CA$37.00. Still, with such a tight range of estimates, it suggeststhe analysts have a pretty good idea of what they think the company is worth.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would also point out that the forecast 4.1% annualised revenue decline to the end of 2023 is roughly in line with the historical trend, which saw revenues shrink 3.7% annually over the past five years By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 2.9% per year. So it's pretty clear that, while it does have declining revenues, the analysts also expect Canadian Utilities to suffer worse than 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. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Canadian Utilities' revenues are expected to perform worse than 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 Canadian Utilities. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Canadian Utilities analysts - going out to 2025, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 2 warning signs for Canadian Utilities that you should be aware of.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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