Last week saw the newest half-yearly earnings release from South32 Limited (ASX:S32), an important milestone in the company's journey to build a stronger business. Revenues came in 8.5% below expectations, at US$3.7b. Statutory earnings per share were relatively better off, with a per-share profit of US$0.57 being roughly in line with analyst estimates. The 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. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, South32's 18 analysts currently expect revenues in 2023 to be US$8.98b, approximately in line with the last 12 months. Statutory earnings per share are expected to nosedive 39% to US$0.31 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$9.13b and earnings per share (EPS) of US$0.36 in 2023. The analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a substantial drop in EPS estimates.
It might be a surprise to learn that the consensus price target was broadly unchanged at AU$5.01, with the 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. There are some variant perceptions on South32, with the most bullish analyst valuing it at AU$5.76 and the most bearish at AU$4.47 per share. 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.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with a forecast 0.5% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 1.4% over the last five years. Yet aggregate analyst estimates for other companies in the industry suggest that industry revenues are forecast to decline 0.4% per year.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for South32. They also made no major changes to their revenue forecasts for next year, with sales expected to grow in line with 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.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for South32 going out to 2025, and you can see them free on our platform here..
Even so, be aware that South32 is showing 2 warning signs in our investment analysis , and 1 of those can't be ignored...
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here