Market forces rained on the parade of Graham Corporation (NYSE:GHM) shareholders today, when the analysts downgraded their forecasts for next year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon. Shares are up 8.4% to US$14.36 in the past week. Investors could be forgiven for changing their mind on the business following the downgrade; but it’s not clear if the revised forecasts will lead to selling activity.
Following the downgrade, the latest consensus from Graham’s three analysts is for revenues of US$97m in 2021, which would reflect an okay 6.9% improvement in sales compared to the last 12 months. Losses are expected to turn into profits real soon, with the analysts forecasting US$0.57 in per-share earnings US$0.57. Previously, the analysts had been modelling revenues of US$109m and earnings per share (EPS) of US$0.82 in 2021. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a large cut to earnings per share numbers as well.
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These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Graham’s past performance and to peers in the same industry. One thing stands out from these estimates, which is that Graham is forecast to grow faster in the future than it has in the past, with revenues expected to grow 6.9%. If achieved, this would be a much better result than the 8.3% annual decline over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 1.2% next year. Not only are Graham’s revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Graham. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. After a cut like that, investors could be forgiven for thinking analysts are a lot more bearish on Graham, and a few readers might choose to steer clear of the stock.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Graham 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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