The latest analyst coverage could presage a bad day for Titan Machinery Inc. (NASDAQ:TITN), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business. Investors however, have been notably more optimistic about Titan Machinery recently, with the stock price up a noteworthy 13% to US$9.26 in the past week. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.
Following the latest downgrade, the current consensus, from the three analysts covering Titan Machinery, is for revenues of US$1.2b in 2021, which would reflect a considerable 9.8% reduction in Titan Machinery’s sales over the past 12 months. Statutory earnings per share are supposed to plummet 62% to US$0.19 in the same period. Prior to this update, the analysts had been forecasting revenues of US$1.4b and earnings per share (EPS) of US$0.98 in 2021. 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.
The consensus price target fell 33% to US$15.67, with the weaker earnings outlook clearly leading analyst valuation estimates. 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. Currently, the most bullish analyst values Titan Machinery at US$17.00 per share, while the most bearish prices it at US$15.00. Still, with such a tight range of estimates, it suggests the analysts have a pretty good idea of what they think the company is worth.
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 also point out that the forecast 9.8% revenue decline is roughly in line with the historical trend, which saw revenues shrink -8.9% annually over the past five years Yet our data suggests that other companies (with analyst coverage) in the industry are expected, in aggregate, to see their revenues rise 4.0% over the coming year. It seems clear that while the revenue forecasts are all negative, Titan Machinery’s revenue decline is expected to be less severe than that of the industry itself.
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 Titan Machinery. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Titan Machinery’s revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we’d understand if readers now felt a bit wary of Titan Machinery.
After a downgrade like this, it’s pretty clear that previous forecasts were too optimistic. What’s more, we’ve spotted several possible issues with Titan Machinery’s business, like its declining profit margins. For more information, you can click here to discover this and the 2 other warning signs we’ve identified.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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