Market forces rained on the parade of Ensign Energy Services Inc. (TSE:ESI) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the latest downgrade, the current consensus, from the eight analysts covering Ensign Energy Services, is for revenues of CA$1.2b in 2020, which would reflect a concerning 25% reduction in Ensign Energy Services’s sales over the past 12 months. Losses are forecast to narrow 2.4% to CA$1.00 per share. Yet before this consensus update, the analysts had been forecasting revenues of CA$1.4b and losses of CA$0.84 per share in 2020. Ergo, there’s been a clear change in sentiment, with the analysts administering a notable cut to this year’s revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target fell 56% to CA$1.22, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. 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. There are some variant perceptions on Ensign Energy Services, with the most bullish analyst valuing it at CA$3.75 and the most bearish at CA$0.60 per share. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. 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.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue shrink 8.2% per year. While this is interesting, Ensign Energy Services’s, revenues are still expected to shrink next year, and at a faster rate than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Ensign Energy Services. Unfortunately they also cut their revenue estimates for this year, and they expect sales to lag the wider market. That said, earnings per share are more important for creating value for shareholders. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
So things certainly aren’t looking great, and you should also know that we’ve spotted some potential warning signs with Ensign Energy Services, including the risk of cutting its dividend. Learn more, and discover the 3 other flags we’ve identified, for free on our platform here.
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