One thing we could say about the analysts on WPX Energy, Inc. (NYSE:WPX) – they aren’t optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.
Following the downgrade, the most recent consensus for WPX Energy from its 15 analysts is for revenues of US$3.2b in 2020 which, if met, would be a sizeable 30% increase on its sales over the past 12 months. Statutory earnings per share are anticipated to crater 35% to US$0.40 in the same period. Previously, the analysts had been modelling revenues of US$3.6b and earnings per share (EPS) of US$0.57 in 2020. Indeed, we can see that the analysts are a lot more bearish about WPX Energy’s prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
The consensus price target fell 23% to US$11.48, with the weaker earnings outlook clearly leading analyst valuation estimates. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic WPX Energy analyst has a price target of US$23.00 per share, while the most pessimistic values it at US$5.00. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. 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.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. The analysts are definitely expecting WPX Energy’s growth to accelerate, with the forecast 30% growth ranking favourably alongside historical growth of 12% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 1.1% next year. Factoring in the forecast acceleration in revenue, it’s pretty clear that WPX Energy is expected to grow much faster than its industry.
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. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. After such a stark change in sentiment from analysts, we’d understand if readers now felt a bit wary of WPX Energy.
That said, the analysts might have good reason to be negative on WPX Energy, given dilutive stock issuance over the past year. Learn more, and discover the 3 other risks 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 downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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