Ares Commercial Real Estate Corporation (NYSE:ACRE) just released its latest third-quarter report and things are not looking great. Results look to have been somewhat negative – revenue fell 8.6% short of analyst estimates at US$13m, and earnings of US$0.31 per share missed forecasts by 3.8%. 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. So we gathered the latest post-earnings forecasts to see what analysts are forecasting for next year.
Taking into account the latest results, the four analysts covering Ares Commercial Real Estate provided consensus estimates of US$63m revenue in 2020, which would reflect a definite 10.0% decline on its sales over the past 12 months. Earnings per share are forecast to be US$1.32, approximately in line with the last 12 months. In the lead-up to this report, analysts had been modelling revenues of US$55m and earnings per share (EPS) of US$1.30 in 2020. Analyst definitely think the business is capable of improving its revenues, even if they don’t foresee any real change in earnings per share.
It may not be a surprise to see that analysts have reconfirmed their price target of US$15.70, implying that the uplift in sales is not expected to greatly contribute to Ares Commercial Real Estate’s valuation in the near term. 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. Currently, the most bullish analyst values Ares Commercial Real Estate at US$16.00 per share, while the most bearish prices it at US$15.50. Still, with such a tight range of estimates, it suggests analysts have a pretty good idea of what they think the company is worth.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 10.0% a significant reduction from annual growth of 1.3% over the last five years. Compare this with our data, which suggests that other companies in the same market are, in aggregate, expected to see their revenue grow 28% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – analysts also expect Ares Commercial Real Estate to grow slower than the wider market.
The Bottom Line
The most obvious conclusion from these results is that there’s been no major change in the business’ prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. Fortunately, analysts also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that said, the long-term trajectory of the company’s earnings is a lot more important than next year. We have estimates – from multiple Ares Commercial Real Estate analysts – going out to 2021, and you can see them free on our platform here.
It might also be worth considering whether Ares Commercial Real Estate’s debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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