One thing we could say about the analysts on PagSeguro Digital Ltd. (NYSE:PAGS) – they aren’t optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue estimates were cut sharply as the analysts signalled a weaker outlook – perhaps a sign that investors should temper their expectations as well. Shares are up 7.3% to R$23.10 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.
After this downgrade, PagSeguro Digital’s 13 analysts are now forecasting revenues of R$6.0b in 2020. This would be a substantial 68% improvement in sales compared to the last 12 months. Per-share earnings are expected to increase 3.6% to R$4.31. Before this latest update, the analysts had been forecasting revenues of R$6.4b and earnings per share (EPS) of R$4.50 in 2020. It’s pretty clear that analyst sentiment has fallen after the recent consensus updates, leading to lower revenue forecasts and a minor downgrade to earnings per share estimates.
Analysts made no major changes to their price target of R$163, suggesting the downgrades are not expected to have a long-term impact on PagSeguro Digital’svaluation. The consensus price target is just an average of individual analyst targets, so – it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on PagSeguro Digital, with the most bullish analyst valuing it at R$224 and the most bearish at R$81.74 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. It’s clear from the latest estimates that PagSeguro Digital’s rate of growth is expected to accelerate meaningfully, with the forecast 68% revenue growth noticeably faster than its historical growth of 39% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 9.7% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect PagSeguro Digital to grow faster than the wider 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. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. Overall, given the drastic downgrade to this year’s forecasts, we’d be feeling a little more wary of PagSeguro Digital going forwards.
There might be good reason for analyst bearishness towards PagSeguro Digital, like dilutive stock issuance over the past year. Learn more, and discover the 2 other warning signs we’ve identified, for free on our platform here.
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