Last week saw the newest first-quarter earnings release from Franklin Electric Co., Inc. (NASDAQ:FELE), an important milestone in the company’s journey to build a stronger business. Revenues of US$267m fell slightly short of expectations, but earnings were a definite bright spot, with statutory per-share profits of US$0.23 an impressive 24% ahead of estimates. Earnings are an important time for investors, as they can track a company’s performance, look at what the analysts are forecasting for next year, and see if there’s been a change in sentiment towards the company. Readers will be glad to know we’ve aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Franklin Electric after the latest results.
After the latest results, the consensus from Franklin Electric’s five analysts is for revenues of US$1.15b in 2020, which would reflect a chunky 11% decline in sales compared to the last year of performance. Statutory earnings per share are expected to tumble 30% to US$1.47 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$1.27b and earnings per share (EPS) of US$1.36 in 2020. So it’s pretty clear that while sentiment around revenues has declined following the latest results, the analysts are now more bullish on the company’s earnings power.
There’s been a 13% lift in the price target to US$54.33, with the analysts signalling that the higher earnings forecasts are more relevant to the business than the weaker revenue estimates. 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 Franklin Electric, with the most bullish analyst valuing it at US$60.00 and the most bearish at US$50.00 per share. The narrow spread of estimates could suggest that the business’ future is relatively easy to value, or thatthe analysts have a strong view on its prospects.
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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 11%, a significant reduction from annual growth of 8.3% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 4.2% annually for the foreseeable future. It’s pretty clear that Franklin Electric’s revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Franklin Electric’s earnings potential next year. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. Still, earnings per share are more important to value creation for shareholders. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates – from multiple Franklin Electric analysts – going out to 2021, and you can see them free on our platform here.
You can also see whether Franklin Electric is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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