After Royal Mail plc’s (LON:RMG) earnings announcement in March 2018, analyst consensus outlook appear cautiously optimistic, with profits predicted to increase by 47.51% next year relative to the past 5-year average growth rate of -2.25%. By 2019, we can expect Royal Mail’s bottom line to reach UK£382.05m, a jump from the current trailing-twelve-month UK£259.00m. I will provide a brief commentary around the figures and analyst expectations in the near term. For those interested in more of an analysis of the company, you can research its fundamentals here.
View our latest analysis for Royal Mail
How is Royal Mail going to perform in the near future?
The longer term view from the 15 analysts covering RMG is one of positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. I’ve plotted out each year’s earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of RMG’s earnings growth over these next few years.
By 2021, RMG’s earnings should reach UK£414.28m, from current levels of UK£259.00m, resulting in an annual growth rate of 8.94%. This leads to an EPS of £0.39 in the final year of projections relative to the current EPS of £0.26. Growth in earnings appears to be a result of cost cutting activities, as revenues is expected to grow much slower than earnings. With a current profit margin of 2.55%, this movement will result in a margin of 3.84% by 2021.
Next Steps:
Future outlook is only one aspect when you’re building an investment case for a stock. For Royal Mail, I’ve compiled three fundamental factors you should look at:
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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.
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Valuation: What is Royal Mail 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 Royal Mail is currently mispriced by the market.
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Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Royal Mail? 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.