The Consensus EPS Estimates For Lynas Rare Earths Limited (ASX:LYC) Just Fell Dramatically

Market forces rained on the parade of Lynas Rare Earths Limited (ASX:LYC) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.

We've discovered 2 warning signs about Lynas Rare Earths. View them for free.

Following the downgrade, the current consensus from Lynas Rare Earths' 15 analysts is for revenues of AU$558m in 2025 which - if met - would reflect a meaningful 16% increase on its sales over the past 12 months. Statutory earnings per share are presumed to grow 18% to AU$0.064. Before this latest update, the analysts had been forecasting revenues of AU$626m and earnings per share (EPS) of AU$0.09 in 2025. Indeed, we can see that the analysts are a lot more bearish about Lynas Rare Earths' prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.

See our latest analysis for Lynas Rare Earths

Analysts made no major changes to their price target of AU$7.92, suggesting the downgrades are not expected to have a long-term impact on Lynas Rare Earths' valuation.

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. The analysts are definitely expecting Lynas Rare Earths' growth to accelerate, with the forecast 34% annualised growth to the end of 2025 ranking favourably alongside historical growth of 10.0% 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 5.9% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Lynas Rare Earths is expected to grow much faster than its industry.

The Bottom Line

The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Lynas Rare Earths after the downgrade.

As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Lynas Rare Earths' financials, such as concerns around earnings quality. For more information, you can click here to discover this and the 1 other risk we've identified.

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 with high insider ownership.

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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.