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K12 Inc. Exceeded Expectations And The Consensus Lifted This Year’s Outlook

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K12 Inc. (NYSE:LRN) shareholders are probably feeling a little disappointed, since its shares fell 4.9% to US$27.08 in the week after its latest first-quarter results. It was overall a positive result, with revenues beating expectations by 2.3% to hit US$371m. K12 also reported a statutory profit of US$0.30, which was a nice improvement from the loss that the analysts were predicting. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. With this in mind, we’ve gathered the latest statutory forecasts to see what the analysts are expecting for next year.

Check out our latest analysis for K12

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Taking into account the latest results, the consensus forecast from K12’s four analysts is for revenues of US$1.46b in 2021, which would reflect a substantial 26% improvement in sales compared to the last 12 months. Per-share earnings are expected to expand 11% to US$1.31. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$1.45b and earnings per share (EPS) of US$1.08 in 2021. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the sizeable expansion in earnings per share expectations following these results.

The average the analysts price target fell 10% to US$49.33, suggesting thatthe analysts have other concerns, and the improved earnings per share outlook was not enough to allay them. 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. There are some variant perceptions on K12, with the most bullish analyst valuing it at US$60.00 and the most bearish at US$43.00 per share. As you can see, analysts are not all in agreement on the stock’s future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It’s clear from the latest estimates that K12’s rate of growth is expected to accelerate meaningfully, with the forecast 26% revenue growth noticeably faster than its historical growth of 4.3%p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 23% next year. Factoring in the forecast acceleration in revenue, it’s pretty clear that K12 is expected to grow at about the same rate as the wider industry.

The Bottom Line

The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards K12 following these results. They also reconfirmed their revenue estimates, with the company predicted to grow at about the same rate as 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 K12’s future valuation.

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. We have estimates – from multiple K12 analysts – going out to 2022, and you can see them free on our platform here.

It is also worth noting that we have found 3 warning signs for K12 (1 makes us a bit uncomfortable!) that you need to take into consideration.

This article by Simply Wall St is general in nature. 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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