Laredo Petroleum, Inc. (NYSE:LPI) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year’s forecasts. The consensus statutory numbers for both revenue and earnings per share (EPS) increased, with their view clearly much more bullish on the company’s business prospects.
Following the latest upgrade, the current consensus, from the eight analysts covering Laredo Petroleum, is for revenues of US$698m in 2020, which would reflect a chunky 16% reduction in Laredo Petroleum’s sales over the past 12 months. The losses are expected to disappear over the next year or so, with forecasts for a profit of US$1.18 per share this year. Previously, the analysts had been modelling revenues of US$652m and earnings per share (EPS) of US$0.34 in 2020. So it seems there’s been a definite increase in optimism about Laredo Petroleum’s future following the latest consensus numbers, with a considerable lift to the earnings per share forecasts in particular.
As a result, it might be a surprise to see that the analysts have cut their price target 8.5% to US$0.81, which could suggest the forecast improvement in performance is not expected to last. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. The most optimistic Laredo Petroleum analyst has a price target of US$2.00 per share, while the most pessimistic values it at US$0.30. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
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. We would highlight that sales are expected to reverse, with the forecast 16% revenue decline a notable change from historical growth of 9.4% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 9.2% next year. It’s pretty clear that Laredo Petroleum’s revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest takeaway for us from these new estimates is that analysts upgraded their earnings per share estimates, with improved earnings power expected for this year. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow slower than the wider market. The declining price target is a puzzle, but still – with a serious upgrade to this year’s expectations, it might be time to take another look at Laredo Petroleum.
Analysts are definitely bullish on Laredo Petroleum, but no company is perfect. Indeed, you should know that there are several potential concerns to be aware of, including dilutive stock issuance over the past year. You can learn more, and discover the 2 other flags we’ve identified, for free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.