Investors in S&W Seed Company (NASDAQ:SANW) had a good week, as its shares rose 5.0% to close at US$2.31 following the release of its first-quarter results. Revenues were 26% better than analyst models forecast, at US$12m. Perhaps unsurprisingly, losses were also slightly larger than expected, at US$0.15 per share, reflecting the higher costs which were likely incurred in generating that revenue. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see analysts’ latest post-earnings forecasts for next year.
After the latest results, the consensus from S&W Seed’s three analysts is for revenues of US$64.5m in 2020, which would reflect a sizeable 33% decline in sales compared to the last year of performance. Losses are expected to increase slightly, to US$0.42 per share. Before this latest report, the consensus had been expecting revenues of US$64.4m and US$0.27 per share in losses. Analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a large cut to EPS estimates.
As a result, there was no major change to the consensus price target of US$5.20, with analysts implicitly confirming that the business looks to be performing in line with expectations, despite higher forecast losses. That’s not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on S&W Seed, with the most bullish analyst valuing it at US$6.00 and the most bearish at US$4.60 per share. The narrow spread of estimates could suggest that the business’ future is relatively easy to value, or that analysts have a clear view on its prospects.
Further, we can compare these estimates to past performance, and see how S&W Seed forecasts compare to the wider market’s forecast performance. We would highlight that sales are expected to reverse, with the forecast 33% revenue decline a notable change from historical growth of 3.9% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 2.9% annually for the foreseeable future. It’s pretty clear that S&W Seed’s revenues are expected to perform substantially worse than the wider market.
The Bottom Line
The most important thing to take away is that analysts reconfirmed their loss per share estimates for next year. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – although our data does suggest that S&W Seed’s revenues are expected to perform worse than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn’t be too quick to come to a conclusion on S&W Seed. Long-term earnings power is much more important than next year’s profits. We have forecasts for S&W Seed going out to 2021, and you can see them free on our platform here.
It might also be worth considering whether S&W Seed’s debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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