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Earnings Beat: SEEK Limited Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Models

There's been a notable change in appetite for SEEK Limited (ASX:SEK) shares in the week since its half-year report, with the stock down 11% to AU$28.19. It looks like a credible result overall - although revenues of AU$819m were what the analysts expected, SEEK surprised by delivering a (statutory) profit of AU$0.19 per share, an impressive 60% above what was forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.

Check out our latest analysis for SEEK

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Taking into account the latest results, the most recent consensus for SEEK from twelve analysts is for revenues of AU$1.60b in 2021 which, if met, would be a credible 3.7% increase on its sales over the past 12 months. Earnings are expected to improve, with SEEK forecast to report a statutory profit of AU$0.15 per share. Yet prior to the latest earnings, the analysts had been anticipated revenues of AU$1.60b and earnings per share (EPS) of AU$0.15 in 2021. So it's pretty clear that, although the analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.

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The analysts reconfirmed their price target of AU$25.72, showing that the business is executing well and in line with expectations. 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 SEEK analyst has a price target of AU$32.30 per share, while the most pessimistic values it at AU$20.50. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's pretty clear that there is an expectation that SEEK's revenue growth will slow down substantially, with revenues next year expected to grow 3.7%, compared to a historical growth rate of 13% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 14% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than SEEK.

The Bottom Line

The most obvious conclusion is that there's been no major change in the business' prospects in recent times, with the analysts holding their earnings forecasts steady, in line with previous estimates. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that SEEK's revenues are expected to perform worse than the wider industry. The consensus price target held steady at AU$25.72, with the latest estimates not enough to have an impact on their price targets.

With that in mind, we wouldn't be too quick to come to a conclusion on SEEK. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple SEEK analysts - going out to 2025, and you can see them free on our platform here.

However, before you get too enthused, we've discovered 1 warning sign for SEEK that you should be aware of.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.