Meridian Energy Limited (NZSE:MEL): Is It A Good Long Term Opportunity?

The latest earnings announcement Meridian Energy Limited (NZSE:MEL) released in June 2018 revealed that the business benefited from a slight tailwind, eventuating to a single-digit earnings growth of 0.5%. Investors may find it useful to understand how market analysts perceive Meridian Energy’s earnings growth trajectory over the next few years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.

See our latest analysis for Meridian Energy

Market analysts’ consensus outlook for the upcoming year seems buoyant, with earnings increasing by a robust 24%. This growth seems to continue into the following year with rates reaching double digit 30% compared to today’s earnings, and finally hitting NZ$283m by 2021.

NZSE:MEL Future Profit October 10th 18

While it’s informative understanding the rate of growth year by year relative to today’s level, it may be more valuable to gauge the rate at which the earnings are rising or falling every year, on average. The advantage of this technique is that it ignores near term flucuations and accounts for the overarching direction of Meridian Energy’s earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I’ve appended a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 10%. This means, we can assume Meridian Energy will grow its earnings by 10% every year for the next few years.

Next Steps:

For Meridian Energy, there are three relevant aspects you should further research:

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 MEL 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 MEL is currently mispriced by the market.

3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of MEL? 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 editorial-team@simplywallst.com.