Sembcorp Industries Ltd $SEMBCORP MARINE LTD(S51.SI)$ shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's statutory forecasts. The analysts have sharply increased their revenue numbers, with a view that Sembcorp Industries will make substantially more sales than they'd previously expected.
Following the upgrade, the consensus from ten analysts covering Sembcorp Industries is for revenues of S$7.1b in 2022, implying a chunky 8.5% decline in sales compared to the last 12 months. Statutory earnings per share are presumed to shoot up 61% to S$0.24. Previously, the analysts had been modelling revenues of S$6.1b and earnings per share (EPS) of S$0.22 in 2022. The forecasts seem more optimistic now, with a solid increase in revenue and a modest lift to earnings per share estimates.With these upgrades, we're not surprised to see that the analysts have lifted their price target 6.8% to S$2.85 per share. 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 Sembcorp Industries analyst has a price target of S$3.20 per share, while the most pessimistic values it at S$2.01. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
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 also point out that the forecast 8.5% annualised revenue decline to the end of 2022 is roughly in line with the historical trend, which saw revenues shrink 8.8% annually over the past five years Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to decline 0.6% annually. While this is interesting, Sembcorp Industries', revenues are still expected to shrink next year, and at a faster rate than the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. They also upgraded their revenue estimates, with sales apparently performing well even though revenue growth expected to decline against the wider market this year. There was also an increase in the price target, suggesting that there is more optimism baked into the forecasts than there was previously. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Sembcorp Industries.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year.
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