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We need to be cautious of analyst share price targets for FTSE 100 companies. But when I see some of them suggesting big gains, it makes me want to take a closer look.
In recent updates, Citigroup has put a 1,300p price target on betting and gaming group Entain (LSE: ENT). And Berenberg has gone one better, with a 1,400p price target.
Those are the two most recent price targets I can find, and they average 1,350p. That would mean a whopping 92.5% rise from market close on Tuesday (18 November).
Not everyone is quite as bullish, mind. Barclays earlier suggested a rise to 945p, which is a fair bit less enthusiastic. But that’s by far the lowest of the past few months’ targets. And even that suggests a 35% increase.
Price rise ahead?
Can this new broker optimism counter the recent Entain share price fall, down 32% since a 52-week high at the end of July? Let’s take a look.
The first thing I see raises a note of caution. Entain posted a loss after tax of £461m last year, and a 70.8p loss per share. Against that, underlying operating profit was put at £617m, with continuing adjusted earnings per share at 29.9p. And there were quite a few adjusting items.
CEO Stella David pointed out it was “a year of transformation for Entain“. And that can often mean wild swings in accounting measures. But it doesn’t help us analyse a company’s valuation.
Forward to the current year, and analysts expect another loss per share — though a much smaller one. With October’s Q3 update, the CEO said “Entain’s transformation continues at pace“, adding “we still have more to do“.
Jam tomorrow?
Bullish analyst targets are clearly geared towards a return to profit, expect in 2026. Earnings forecasts for that year suggest a price-to-earnings (P/E) ratio of about 13. That 92.5% price target hike, if it comes off by then, could push the P/E up as high as 25. I really don’t know if that could be justified.
A lot can happen between now and the end of 2026. Oh, like the UK Budget due on 26 November. Now that Chancellor Rachel Reeves has ruled out income tax rises, might gambling be a new taxation target? I could see it being very tempting. And regulation threat is ever present.
The Entain recovery does look impressive. And at the halfway stage this year, we saw a 5% rise in the interim dividend. There’s a forecast 2.8% yield on the cards — lower than the FTSE 100 average, but it could build up progressively.
Bottom line?
I’m getting mixed signals here. I do see attractive earnings growth prospects at Entain with its refocus bearing fruit. But until we see actual profits, the risk is still there. And it’s an industry that can be very cyclical.
I do think investors looking for FTSE100 growth could do well to consider Entain now. But I’ll base my decision on fundamentals, and not on analyst price targets — I don’t really understand why they’re so high.
