Brickworks Limited (ASX:BKW): Are Analysts Right About The Drop In Earnings?

The latest earnings release Brickworks Limited’s (ASX:BKW) announced in July 2018 indicated that the business endured a minor headwind with earnings declining from AU$186m to AU$175m, a change of -5.8%. Below, I’ve laid out key numbers on how market analysts predict Brickworks’s earnings growth trajectory over the next couple of years and whether the future looks brighter. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.

View our latest analysis for Brickworks

Analysts’ expectations for the coming year seems positive, with earnings climbing by a robust 23%. However, the following year seems to show a contrast, with earnings declining by -6.4%. This volatility continues into the final year of forecast, with earnings generating AU$180m.

ASX:BKW Future Profit January 26th 19

Even though it is helpful to understand the growth year by year relative to today’s level, it may be more valuable determining the rate at which the company is growing every year, on average. The pro of this method is that we can get a bigger picture of the direction of Brickworks’s earnings trajectory over the long run, irrespective of near term fluctuations, fluctuate up and down. To calculate this rate, I’ve inserted a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is -1.0%. This means that, we can expect Brickworks will chip away at a rate of -1.0% every year for the next few years.

Next Steps:

For Brickworks, I’ve put together three fundamental aspects you should look at:

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

2. Valuation: What is BKW worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BKW is currently mispriced by the market.

3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of BKW? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.