Webjet Limited (ASX:WEB) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. The consensus statutory numbers for both revenue and earnings per share (EPS) increased, with their view clearly much more bullish on the company's business prospects. The stock price has risen 5.4% to AU$4.91 over the past week, suggesting investors are becoming more optimistic. It will be interesting to see if this latest upgrade is enough to kickstart further buying interest in the stock.
Following the upgrade, the latest consensus from Webjet's eight analysts is for revenues of AU$79m in 2021, which would reflect a notable 11% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 63% to AU$0.39. Yet before this consensus update, the analysts had been forecasting revenues of AU$67m and losses of AU$0.45 per share in 2021. We can see there's definitely been a change in sentiment in this update, with the analysts administering a sizeable upgrade to this year's revenue estimates, while at the same time reducing their loss estimates.
There was no major change to the consensus price target of AU$4.88, perhaps suggesting that the analysts remain concerned about ongoing losses despite the improved earnings and revenue 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. Currently, the most bullish analyst values Webjet at AU$7.02 per share, while the most bearish prices it at AU$2.10. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
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. The analysts are definitely expecting Webjet's growth to accelerate, with the forecast 23% annualised growth to the end of 2021 ranking favourably alongside historical growth of 8.3% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 16% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Webjet is expected to grow much faster than its industry.
The Bottom Line
The highlight for us was that the consensus reduced its estimated losses this year, perhaps suggesting Webjet is moving incrementally towards profitability. 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 Webjet.
Analysts are clearly in love with Webjet at the moment, but before diving in - you should be aware that we've identified some warning flags with the business, such as dilutive stock issuance over the past year. For more information, you can click through to our platform to learn more about this and the 2 other warning signs we've identified .
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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