There's been a notable change in appetite for Codan Limited (ASX:CDA) shares in the week since its yearly report, with the stock down 11% to AU$7.67. Results look mixed - while revenue fell marginally short of analyst estimates at AU$506m, statutory earnings were in line with expectations, at AU$0.56 per share. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
After the latest results, the six analysts covering Codan are now predicting revenues of AU$533.6m in 2023. If met, this would reflect a satisfactory 5.4% improvement in sales compared to the last 12 months. Per-share earnings are expected to accumulate 4.0% to AU$0.58. Before this earnings report, the analysts had been forecasting revenues of AU$557.1m and earnings per share (EPS) of AU$0.60 in 2023. The analysts are less bullish than they were before these results, given the reduced revenue forecasts and the minor downgrade to earnings per share expectations.
The consensus price target fell 6.7% to AU$9.72, with the weaker earnings outlook clearly leading valuation estimates. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Codan analyst has a price target of AU$10.20 per share, while the most pessimistic values it at AU$8.50. This is a very narrow spread of estimates, implying either that Codan is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
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 Codan's revenue growth will slow down substantially, with revenues to the end of 2023 expected to display 5.4% growth on an annualised basis. This is compared to a historical growth rate of 19% 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 22% per year. Factoring in the forecast slowdown in growth, it seems obvious that Codan is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. 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. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
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. At Simply Wall St, we have a full range of analyst estimates for Codan going out to 2025, and you can see them free on our platform here..
Plus, you should also learn about the 2 warning signs we've spotted with Codan (including 1 which is significant) .
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here