Today is shaping up negative for Nine Energy Service, Inc. (NYSE:NINE) shareholders, with the analysts delivering a substantial negative revision to this year’s forecasts. Revenue estimates were cut sharply as analysts signalled a weaker outlook – perhaps a sign that investors should temper their expectations as well. Surprisingly the share price has been buoyant, rising 64% to US$1.45 in the past 7 days. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.
Following the downgrade, the consensus from four analysts covering Nine Energy Service is for revenues of US$404m in 2020, implying a disturbing 51% decline in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 65% to US$2.61. Yet before this consensus update, the analysts had been forecasting revenues of US$462m and losses of US$2.39 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.
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 51% revenue decline a notable change from historical growth of 21% over the last five years. Yet aggregate analyst estimates for other companies in the industry suggest that industry revenues are forecast to decline 1.5% next year. So it’s pretty clear that Nine Energy Service’s revenues are expected to shrink faster than 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 they also downgraded their revenue estimates, and our aggregation of analyst estimates suggests that Nine Energy Service revenue is expected to perform worse than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn’t be surprised if the market became a lot more cautious on Nine Energy Service after today.
With that said, the long-term trajectory of the company’s earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Nine Energy Service going out to 2022, and you can see them free on our platform here.
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.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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