What Does The Future Hold For Genworth Mortgage Insurance Australia Limited (ASX:GMA)? These Analysts Have Been Cutting Their Estimates

Today is shaping up negative for Genworth Mortgage Insurance Australia Limited (ASX:GMA) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.

Following the downgrade, the latest consensus from Genworth Mortgage Insurance Australia's three analysts is for revenues of AU$595m in 2021, which would reflect a substantial 51% improvement in sales compared to the last 12 months. Prior to the latest estimates, the analysts were forecasting revenues of AU$662m in 2021. It looks like forecasts have become a fair bit less optimistic on Genworth Mortgage Insurance Australia, given the measurable cut to revenue estimates.

View our latest analysis for Genworth Mortgage Insurance Australia

The consensus price target rose 5.1% to AU$2.74, with the analysts clearly more optimistic about Genworth Mortgage Insurance Australia's prospects following this update. 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 Genworth Mortgage Insurance Australia at AU$3.60 per share, while the most bearish prices it at AU$2.20. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Genworth Mortgage Insurance Australia shareholders.

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. For example, we noticed that Genworth Mortgage Insurance Australia's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 51% growth to the end of 2021 on an annualised basis. That is well above its historical decline of 10.0% a year over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to decline 0.9% per year. So although Genworth Mortgage Insurance Australia is expected to return to growth, it's also expected to grow revenues during a time when the wider industry is estimated to see revenue decline.

The Bottom Line

The most important thing to take away is that analysts cut their revenue estimates for this year. They're also forecasting for revenues to perform better than companies in the wider market. There was also a nice increase in the price target, with analysts apparently feeling that the intrinsic value of the business is improving. Given the stark change in sentiment, we'd understand if investors became more cautious on Genworth Mortgage Insurance Australia after today.

Of course, there's always more to the story. We have estimates for Genworth Mortgage Insurance Australia from its three analysts out until 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 downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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