Rainbows and Unicorns: Air Arabia PJSC (DFM:AIRARABIA) Analysts Just Became A Lot More Optimistic

Celebrations may be in order for Air Arabia PJSC (DFM:AIRARABIA) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. The analysts greatly increased their revenue estimates, suggesting a stark improvement in business fundamentals.

Following the upgrade, the most recent consensus for Air Arabia PJSC from its five analysts is for revenues of د.إ2.6b in 2021 which, if met, would be a sizeable 40% increase on its sales over the past 12 months. The losses are expected to disappear over the next year or so, with forecasts for a profit of د.إ0.023 per share this year. However, before this estimates update, the consensus had been expecting revenues of د.إ2.3b and د.إ0.02 per share in losses. So we can see that this has sparked a pretty clear upgrade to expectations, with higher revenues anticipated to lead to profit sooner than previously forecast.

View our latest analysis for Air Arabia PJSC

Despite these upgrades, the analysts have not made any major changes to their price target of د.إ1.40, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. 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 Air Arabia PJSC, with the most bullish analyst valuing it at د.إ1.65 and the most bearish at د.إ1.00 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

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. One thing stands out from these estimates, which is that Air Arabia PJSC is forecast to grow faster in the future than it has in the past, with revenues expected to display 40% annualised growth until the end of 2021. If achieved, this would be a much better result than the 1.8% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue grow 31% per year. Not only are Air Arabia PJSC's revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.

The Bottom Line

The most important thing to take away from this upgrade is that the consensus now expects Air Arabia PJSC to become profitable this year. Fortunately, analysts also upgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider market. The lack of change in the price target is puzzling, but with a serious upgrade to this year's earnings expectations, it might be time to take another look at Air Arabia PJSC.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Air Arabia PJSC analysts - going out to 2024, 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 upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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