Some Analysts Just Cut Their First National Financial Corporation (TSE:FN) Estimates

Market forces rained on the parade of First National Financial Corporation (TSE:FN) shareholders today, when the analysts downgraded their forecasts for next year. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.

After the downgrade, the four analysts covering First National Financial are now predicting revenues of CA$818m in 2023. If met, this would reflect a decent 9.9% improvement in sales compared to the last 12 months. Statutory earnings per share are anticipated to shrink 8.1% to CA$2.98 in the same period. Previously, the analysts had been modelling revenues of CA$1.0b and earnings per share (EPS) of CA$3.16 in 2023. It looks like analyst sentiment has fallen somewhat in this update, with a substantial drop in revenue estimates and a small dip in earnings per share numbers as well.

Check out our latest analysis for First National Financial

Analysts made no major changes to their price target of CA$35.83, suggesting the downgrades are not expected to have a long-term impact on First National Financial's valuation. 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. The most optimistic First National Financial analyst has a price target of CA$40.00 per share, while the most pessimistic values it at CA$33.00. Still, with such a tight range of estimates, it suggests the analysts have a pretty good idea of what they think the company is worth.

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. It's pretty clear that there is an expectation that First National Financial's revenue growth will slow down substantially, with revenues to the end of 2023 expected to display 7.9% growth on an annualised basis. This is compared to a historical growth rate of 11% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 12% annually. Factoring in the forecast slowdown in growth, it seems obvious that First National Financial is also expected to grow slower than other industry participants.

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 First National Financial's revenues are expected to grow slower than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on First National Financial after today.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple First National Financial analysts - going out to 2024, and you can see them free on our platform here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.