The latest analyst coverage could presage a bad day for Kosmos Energy Ltd. (NYSE:KOS), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the latest downgrade, the eight analysts covering Kosmos Energy provided consensus estimates of US$1.0b revenue in 2020, which would reflect a stressful 33% decline on its sales over the past 12 months. Losses are supposed to balloon 205% to US$0.42 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$1.3b and losses of US$0.16 per share in 2020. So there’s been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 40% to US$3.77, implicitly signalling that lower earnings per share are a leading indicator for Kosmos Energy’s valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. Currently, the most bullish analyst values Kosmos Energy at US$9.00 per share, while the most bearish prices it at US$1.10. 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. With this in mind, we wouldn’t rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast revenue decline of 33%, a significant reduction from annual growth of 22% 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 1.1% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – Kosmos Energy is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Kosmos Energy’s revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we’d understand if readers now felt a bit wary of Kosmos Energy.
There might be good reason for analyst bearishness towards Kosmos Energy, like the risk of cutting its dividend. For more information, you can click here to discover this and the 1 other concern we’ve identified.
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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