In September 2017, Trustpower Limited (NZSE:TPW) released its most recent earnings update. Generally, analyst consensus outlook seem bearish, with earnings expected to decline by -3.64% in the upcoming year. However, this is still an improvement on its past 5-year earnings growth rate of -4.85%, on average. Currently with a profit of NZ$92.5M, the consensus growth rate suggests that earnings will drop to NZ$89.2M by 2018. Below is a brief commentary on the longer term outlook the market has for TPW. Readers that are interested in understanding TPW beyond these figures should research its fundamentals here. Check out our latest analysis for Trustpower
How will Trustpower perform in the near future?
The view from 6 analysts over the next three years is one of negative sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To reduce the year-on-year volatility of analyst earnings forecast, I’ve inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.
This results in an annual growth rate of -2.22% based on the most recent earnings level of NZ$92.5M to the final forecast of NZ$84.3M by 2020. However, if we exclude extraordinary items from earnings, we see that the profits is predicted to rise over time, resulting in an EPS of NZ$0.37 in the final year of forecast compared to the current NZ$0.3 EPS today. The main reason for TPW’s earnings contraction is cost outpacing top line growth of 1.53% over the next few years. Furthermore, the current 9.85% margin is expected to contract to 8.74% by the end of 2020.
Next Steps:
Future outlook is only one aspect when you’re building an investment case for a stock. For Trustpower, there are three pertinent aspects you should look at:
1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Valuation: What is TPW worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether TPW is currently mispriced by the market.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of TPW? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.