The latest analyst coverage could presage a bad day for Asbury Automotive Group, Inc. (NYSE:ABG), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon. Surprisingly the share price has been buoyant, rising 20% to US$60.82 in the past 7 days. It will be interesting to see if the downgrade has an impact on buying demand for the company’s shares.
Following this downgrade, Asbury Automotive Group’s eight analysts are forecasting 2020 revenues to be US$7.3b, approximately in line with the last 12 months. Statutory earnings per share are supposed to plunge 22% to US$7.49 in the same period. Before this latest update, the analysts had been forecasting revenues of US$8.3b and earnings per share (EPS) of US$10.65 in 2020. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a pretty serious decline to earnings per share numbers as well.
It’ll come as no surprise then, to learn that the analysts have cut their price target 5.8% to US$93.75. That’s not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on Asbury Automotive Group, with the most bullish analyst valuing it at US$130 and the most bearish at US$69.00 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying 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 Asbury Automotive Group’s revenue growth is expected to slow, with forecast 1.4% increase next year well below the historical 2.8% p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 4.6% next year. So it’s pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Asbury Automotive Group.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Asbury Automotive Group’s revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. At Simply Wall St, we have a full range of analyst estimates for Asbury Automotive Group going out to 2022, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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