Time To Worry? Analysts Are Downgrading Their Codan Limited (ASX:CDA) Outlook

The latest analyst coverage could presage a bad day for Codan Limited (ASX:CDA), 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 the analysts seeing grey clouds on the horizon.

Following the latest downgrade, the seven analysts covering Codan provided consensus estimates of AU$463m revenue in 2023, which would reflect a chunky 8.6% decline on its sales over the past 12 months. Statutory earnings per share are anticipated to crater 27% to AU$0.41 in the same period. Before this latest update, the analysts had been forecasting revenues of AU$534m and earnings per share (EPS) of AU$0.57 in 2023. Indeed, we can see that the analysts are a lot more bearish about Codan's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

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It'll come as no surprise then, to learn that the analysts have cut their price target 39% to AU$6.03. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Codan analyst has a price target of AU$13.06 per share, while the most pessimistic values it at AU$4.10. 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. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 8.6% by the end of 2023. This indicates a significant reduction from annual growth of 19% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 21% annually for the foreseeable future. It's pretty clear that Codan's revenues are expected to perform substantially worse than the wider 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, and industry data suggests that Codan's revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Codan's business, like concerns around earnings quality. For more information, you can click here to discover this and the 1 other warning sign 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 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.