Air New Zealand Limited’s (NZSE:AIR) released its most recent earnings update in June 2018, which confirmed that the business benefited from a small tailwind, leading to a single-digit earnings growth of 2.1%. Today I want to provide a brief commentary on how market analysts view Air New Zealand’s earnings growth trajectory over the next few years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
Analysts’ expectations for the upcoming year seems pessimistic, with earnings decreasing by a double-digit -15%. However, the next few years show a contrast, with earnings growth becoming positive in 2021, with the bottom line increasing to NZ$410m in 2022.
While it is useful to be aware of the rate of growth year by year relative to today’s level, it may be more valuable estimating the rate at which the company is growing on average every year. The pro of this technique is that it ignores near term flucuations and accounts for the overarching direction of Air New Zealand’s earnings trajectory over time, which may be more relevant for long term investors. To calculate this rate, I’ve appended a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 2.8%. This means, we can assume Air New Zealand will grow its earnings by 2.8% every year for the next few years.
For Air New Zealand, there are three pertinent factors you should further examine:
- 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.
- Valuation: What is AIR 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 AIR is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of AIR? 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.