Tesco PLC Recorded A 7.1% Miss On Revenue: Analysts Are Revisiting Their Models
It's been a good week for Tesco PLC (LON: TSCO) shareholders as the company just released its latest interim results and the stock rose 4.6% to £ 2.20 in the UK. Sales were 7.1% below expectations at £ 29 billion. Statutory earnings per share were relatively better, with earnings per share of £ 0.095 roughly in line with analysts' estimates. The outcome is an important time for investors as they can track a company's performance, review analyst projections for the next year, and see if sentiment toward the company has changed. We thought readers would find it interesting to see the latest (statutory) post-earnings forecasts from analysts for the next year.
Check out our latest analysis for Tesco
Profit and sales growth
According to the latest results, Tesco's 14 analysts agree with sales of £ 58.2 billion in 2021, which would represent a significant 10% drop in sales from the last year of performance. Earnings per share are expected to grow 22% to £ 0.13. Prior to this report, the analysts had modeled sales of £ 59.8 billion and earnings per share (EPS) of £ 0.12 in 2021. If anything, the analysts seem to have become somewhat more optimistic overall. As they lowered their sales projections, EPS projections rose and ultimately profits are more important.
The UK's average target price of £ 2.77 hasn't really changed as the lower sales and earnings projections are unlikely to materially affect the company's valuation over the longer term. That is not the only conclusion we can draw from this data, however, as some investors also like to consider the dispersion of estimates when evaluating analyst price targets. There are a few different perceptions at Tesco, with the most bullish analyst rating this at £ 3.15 and the most bearish at £ 2.20 per share. Analysts definitely have different views on the business, but we don't think the spread of estimates is wide enough to suggest that extreme results could be awaiting Tesco shareholders.
Another way to look at these projections is of course to put them in context with the industry itself. These estimates assume that with a projected sales decline of 10%, sales are likely to slow down, a significant decrease from the 4.2% annual growth over the past five years. In contrast, our data suggests that other companies (with analyst reporting) in the same industry are forecasting annual revenue growth of 2.8% for the foreseeable future. While sales are forecast to decline, this cloud doesn't have a silver lining - Tesco is likely to lag behind the broader industry.
The bottom line
Most importantly, analysts have improved their earnings per share estimates, suggesting that optimism about Tesco has increased significantly following these results. Unfortunately, they've also downgraded their sales estimates, and our data shows that sales are likely to perform worse than the industry as a whole. Even so, earnings per share are more important to the intrinsic value of the business. Still, the profits are more important to the intrinsic value of the business. The consensus price target remained steady at £ 2.77, with recent estimates not enough to affect their price targets.
With that in mind, we still think that the longer term development of the business is much more important to investors. We have forecasts for Tesco for 2025, which you can see for free on our platform here.
And what about risks? Every company has them, and we've spotted 3 warning signs for Tesco (one of which matters!) That you should be aware of.
This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.
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