GlaxoSmithKline plc (LON:GSK) shareholders are probably feeling a little disappointed, since its shares fell 3.9% to UK£12.92 in the week after its latest quarterly results. It looks like a credible result overall - although revenues of UK£8.6b were what the analysts expected, GlaxoSmithKline surprised by delivering a (statutory) profit of UK£0.25 per share, an impressive 44% above what was forecast. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.
Taking into account the latest results, the consensus forecast from GlaxoSmithKline's 21 analysts is for revenues of UK£35.5b in 2021, which would reflect a credible 3.8% improvement in sales compared to the last 12 months. Statutory earnings per share are forecast to tumble 33% to UK£0.86 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of UK£35.7b and earnings per share (EPS) of UK£0.86 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.
It will come as no surprise then, to learn that the consensus price target is largely unchanged at UK£17.48. 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. There are some variant perceptions on GlaxoSmithKline, with the most bullish analyst valuing it at UK£23.50 and the most bearish at UK£11.20 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
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. It's pretty clear that there is an expectation that GlaxoSmithKline's revenue growth will slow down substantially, with revenues next year expected to grow 3.8%, compared to a historical growth rate of 7.3% 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 8.4% per year. Factoring in the forecast slowdown in growth, it seems obvious that GlaxoSmithKline is also expected to grow slower than other industry participants.
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. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than 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. We have forecasts for GlaxoSmithKline going out to 2024, and you can see them free on our platform here.
You should always think about risks though. Case in point, we've spotted 1 warning sign for GlaxoSmithKline 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 firstname.lastname@example.org.