The latest analyst coverage could presage a bad day for Formula One Group (NASDAQ:FWON.K), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Shares are up 10.0% to US$24.20 in the past week. Investors could be forgiven for changing their mind on the business following the downgrade; but it’s not clear if the revised forecasts will lead to selling activity.
Following the latest downgrade, the current consensus, from the eight analysts covering Formula One Group, is for revenues of US$1.8b in 2020, which would reflect an uneasy 12% reduction in Formula One Group’s sales over the past 12 months. Prior to the latest estimates, the analysts were forecasting revenues of US$2.0b in 2020. The consensus view seems to have become more pessimistic on Formula One Group, noting the measurable cut to revenue estimates in this update.
Notably, the analysts have cut their price target 9.9% to US$39.88, suggesting concerns around Formula One Group’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. The most optimistic Formula One Group analyst has a price target of US$50.00 per share, while the most pessimistic values it at US$30.00. This shows there is still some diversity in estimates, but analysts don’t appear to be totally split on the stock as though it might be a success or failure situation.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Formula One Group’s past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 12%, a significant reduction from annual growth of 32% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 11% annually for the foreseeable future. It’s pretty clear that Formula One Group’s revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their revenue estimates for this year. They also expect company revenue to perform worse than the wider market. With a serious cut to this year’s expectations and a falling price target, we wouldn’t be surprised if investors were becoming wary of Formula One Group.
Hungry for more information? We have estimates for Formula One Group from its eight analysts out until 2024, and you can see them free on our platform here.
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