Softchoice Corporation (TSE:SFTC) defied analyst predictions to release its second-quarter results, which were ahead of market expectations. It was overall a positive result, with revenues beating expectations by 9.2% to hit US$254m. Softchoice reported statutory earnings per share (EPS) US$0.12, which was a notable 20% above what the analysts had forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Taking into account the latest results, the most recent consensus for Softchoice from seven analysts is for revenues of US$989.4m in 2022 which, if met, would be a reasonable 5.9% increase on its sales over the past 12 months. Per-share earnings are expected to soar 93% to US$0.55. In the lead-up to this report, the analysts had been modelling revenues of US$979.1m and earnings per share (EPS) of US$0.65 in 2022. So there's definitely been a decline in sentiment after the latest results, noting the substantial drop in new EPS forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at CA$25.86, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Softchoice at CA$31.76 per share, while the most bearish prices it at CA$20.75. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. The period to the end of 2022 brings more of the same, according to the analysts, with revenue forecast to display 12% growth on an annualised basis. That is in line with its 10% annual growth over the past year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 9.0% per year. So although Softchoice is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider industry.
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. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry. The consensus price target held steady at CA$25.86, with the latest estimates not enough to have an impact on their price targets.
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 Softchoice going out to 2024, and you can see them free on our platform here..
You still need to take note of risks, for example - Softchoice has 1 warning sign we think you should be aware of.
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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.
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