Today is shaping up negative for SATS Ltd. (SGX:S58) shareholders, with the analysts delivering a substantial negative revision to next year’s forecasts. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative. Bidders are definitely seeing a different story, with the stock price of S$3.16 reflecting a 16% rise in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.
Following the latest downgrade, the current consensus, from the eleven analysts covering SATS, is for revenues of S$1.7b in 2021, which would reflect a considerable 13% reduction in SATS’ sales over the past 12 months. Statutory earnings per share are anticipated to shrink 3.2% to S$0.19 in the same period. Previously, the analysts had been modelling revenues of S$1.9b and earnings per share (EPS) of S$0.20 in 2021. Indeed, we can see that analyst sentiment has declined measurably after the new consensus came out, with a measurable cut to revenue estimates and a minor downgrade to EPS estimates to boot.
It’ll come as no surprise then, to learn that the analysts have cut their price target 5.4% to S$4.41. 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. Currently, the most bullish analyst values SATS at S$6.10 per share, while the most bearish prices it at S$2.66. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
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. We would highlight that sales are expected to reverse, with the forecast 13% revenue decline a notable change from historical growth of 1.8% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 8.6% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – SATS is expected to lag 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. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Given the stark change in sentiment, we’d understand if investors became more cautious on SATS after today.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. At Simply Wall St, we have a full range of analyst estimates for SATS going out to 2025, 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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