Last week, you might have seen that Saudi Arabian Oil Company (TADAWUL:2222) released its annual result to the market. The early response was not positive, with shares down 2.0% to ر.س29.10 in the past week. It was a pretty mixed result, with revenues beating expectations to hit ر.س1.2t. Statutory earnings fell 4.4% short of analyst forecasts, reaching ر.س1.65 per share. Earnings are an important time for investors, as they can track a company’s performance, look at what top analysts are forecasting for next year, and see if there’s been a change in sentiment towards the company. Readers will be glad to know we’ve aggregated the latest statutory forecasts to see whether analysts have changed their mind on Saudi Arabian Oil after the latest results.
Taking into account the latest results, the 14 analysts covering Saudi Arabian Oil provided consensus estimates of ر.س971.4b revenue in 2020, which would reflect a painful 21% decline on its sales over the past 12 months. Statutory earnings per share are forecast to sink 15% to ر.س1.41 in the same period. In the lead-up to this report, analysts had been modelling revenues of ر.س1.27t and earnings per share (EPS) of ر.س1.84 in 2020. It looks like analyst sentiment has declined substantially in the aftermath of these results, with a large cut to revenue estimates and a pretty serious reduction to consensus earnings per share numbers as well.
It’ll come as no surprise then, to learn that analysts have cut their price target 6.0% to ر.س30.89. The consensus price target just an average of individual analyst targets, so – considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. The most optimistic Saudi Arabian Oil analyst has a price target of ر.س43.00 per share, while the most pessimistic values it at ر.س24.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
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. We would highlight that sales are expected to reverse, with the forecast 21% revenue decline a notable change from historical growth of 22% over the last three years. Compare this with our data, which suggests that other companies in the same market are, in aggregate, expected to see their revenue grow 5.8% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – analysts also expect Saudi Arabian Oil to grow slower than the wider market.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have forecasts for Saudi Arabian Oil going out to 2024, and you can see them free on our platform here.
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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