These Analysts Just Made A Notable Downgrade To Their New Hope Corporation Limited (ASX:NHC) EPS Forecasts

The latest analyst coverage could presage a bad day for New Hope Corporation Limited (ASX:NHC), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.

After the downgrade, the six analysts covering New Hope are now predicting revenues of AU$3.3b in 2023. If met, this would reflect a major 30% improvement in sales compared to the last 12 months. Per-share earnings are expected to jump 47% to AU$1.65. Previously, the analysts had been modelling revenues of AU$3.8b and earnings per share (EPS) of AU$2.05 in 2023. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a real cut to earnings per share numbers as well.

See our latest analysis for New Hope

It'll come as no surprise then, to learn that the analysts have cut their price target 9.3% to AU$7.06. 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 New Hope, with the most bullish analyst valuing it at AU$13.81 and the most bearish at AU$4.00 per share. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. 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.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the New Hope's past performance and to peers in the same industry. The analysts are definitely expecting New Hope's growth to accelerate, with the forecast 30% annualised growth to the end of 2023 ranking favourably alongside historical growth of 14% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to see a revenue decline of 0.5% annually. It seems obvious that as part of the brighter growth outlook, New Hope is expected to grow faster than the wider industry.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for New Hope. Sadly they also cut their revenue estimates, although at least the company is expected to perform a bit better than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of New Hope.

That said, the analysts might have good reason to be negative on New Hope, given dilutive stock issuance over the past year. Learn more, and discover the 2 other concerns we've identified, for 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.