The analyst covering Melcor Developments Ltd. (TSE:MRD) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue estimates were cut sharply as the analyst signalled a weaker outlook – perhaps a sign that investors should temper their expectations as well.
Following the latest downgrade, the single analyst covering Melcor Developments provided consensus estimates of CA$165m revenue in 2020, which would reflect a concerning 20% decline on its sales over the past 12 months. Prior to the latest estimates, the analyst was forecasting revenues of CA$281m in 2020. The consensus view seems to have become more pessimistic on Melcor Developments, noting the pretty serious reduction to revenue estimates in this update.
Notably, the analyst has cut their price target 26% to CA$10.00, suggesting concerns around Melcor Developments’ valuation.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. Over the past five years, revenues have declined around 4.1% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for a 20% decline in revenue next year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 9.9% per year. So it’s pretty clear that, while it does have declining revenues, the analyst also expect Melcor Developments to suffer worse than the wider industry.
The Bottom Line
The clear low-light was that the analyst slashing their revenue forecasts for Melcor Developments this year. They also expect company revenue to perform worse than the wider market. The consensus price target fell measurably, with the analyst seemingly not reassured by recent business developments, leading to a lower estimate of Melcor Developments’ future valuation. Overall, given the drastic downgrade to this year’s forecasts, we’d be feeling a little more wary of Melcor Developments going forwards.
Unsatisfied? We have forecasts for Melcor Developments from one covering analyst, and you can see them free on our platform here.
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