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Software Aktiengesellschaft Just Missed EPS By 71%: Here's What Analysts Think Will Happen Next

It's been a mediocre week for Software Aktiengesellschaft (ETR:SOW) shareholders, with the stock dropping 19% to €20.80 in the week since its latest annual results. Statutory earnings per share fell badly short of expectations, coming in at €0.26, some 71% below analyst forecasts, although revenues were okay, approximately in line with analyst estimates at €958m. 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.

See our latest analysis for Software

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After the latest results, the 13 analysts covering Software are now predicting revenues of €1.02b in 2023. If met, this would reflect an okay 6.1% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to leap 361% to €1.18. In the lead-up to this report, the analysts had been modelling revenues of €1.01b and earnings per share (EPS) of €1.42 in 2023. The analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a real cut to EPS estimates.

The average price target fell 7.3% to €27.04, with reduced earnings forecasts clearly tied to a lower valuation estimate. 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. Currently, the most bullish analyst values Software at €37.00 per share, while the most bearish prices it at €18.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. For example, we noticed that Software's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 6.1% growth to the end of 2023 on an annualised basis. That is well above its historical decline of 0.03% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 7.8% per year. Although Software's revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the broader 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, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Software's revenues are expected to perform worse than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Software's future valuation.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Software going out to 2025, and you can see them free on our platform here.

That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Software (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

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.

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