It's been a good week for Bunzl plc (LON:BNZL) shareholders, because the company has just released its latest yearly results, and the shares gained 4.6% to UK£20.08. Results were roughly in line with estimates, with revenues of UK£9.3b and statutory earnings per share of UK£1.05. Following the result, 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether analysts have changed their mind on Bunzl after the latest results.
Following last week's earnings report, Bunzl's 13 analysts are forecasting 2020 revenues to be UK£9.37b, approximately in line with the last 12 months. Statutory earnings per share are expected to shrink 3.2% to UK£1.01 in the same period. Yet prior to the latest earnings, analysts had been forecasting revenues of UK£9.34b and earnings per share (EPS) of UK£1.07 in 2020. Analysts seem to have become a little more negative on the business after the latest results, given the minor downgrade to their earnings per share forecasts for next year.
It might be a surprise to learn that the consensus price target was broadly unchanged at UK£21.30, with 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. The most optimistic Bunzl analyst has a price target of UK£28.50 per share, while the most pessimistic values it at UK£16.20. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's pretty clear that analysts expect Bunzl's revenue growth will slow down substantially, with revenues next year expected to grow 0.5%, compared to a historical growth rate of 9.5% over the past five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 4.7% per year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect Bunzl to grow slower than the wider market.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Bunzl. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Bunzl's revenues are expected to perform worse than the wider market. The consensus price target held steady at UK£21.30, with the latest estimates not enough to have an impact on analysts' estimated valuations.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have forecasts for Bunzl going out to 2024, and you can see them free on our platform here.
You can also view our analysis of Bunzl's balance sheet, and whether we think Bunzl is carrying too much debt, for free on our platform here.
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