Some Analysts Just Cut Their Ballard Power Systems Inc. (TSE:BLDP) Estimates

Today is shaping up negative for Ballard Power Systems Inc. (TSE:BLDP) shareholders, with the analysts delivering a substantial negative revision to next year's forecasts. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Bidders are definitely seeing a different story, with the stock price of CA$8.54 reflecting a 19% rise in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.

After the downgrade, the 23 analysts covering Ballard Power Systems are now predicting revenues of US$120m in 2023. If met, this would reflect a substantial 20% improvement in sales compared to the last 12 months. Losses are presumed to reduce, shrinking 15% from last year to US$0.52. Yet before this consensus update, the analysts had been forecasting revenues of US$134m and losses of US$0.50 per share in 2023. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to next year's revenue estimates, while at the same time increasing their loss per share forecasts.

View our latest analysis for Ballard Power Systems

The consensus price target fell 12% to US$6.42, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Ballard Power Systems analyst has a price target of US$11.60 per share, while the most pessimistic values it at US$5.99. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

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. For example, we noticed that Ballard Power Systems' rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 16% growth to the end of 2023 on an annualised basis. That is well above its historical decline of 2.0% a year over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 37% annually for the foreseeable future. So although Ballard Power Systems' revenue growth is expected to improve, it is still expected to grow slower than the industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at Ballard Power Systems. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Ballard Power Systems' future valuation. 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 Ballard Power Systems after today.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Ballard Power Systems analysts - going out to 2024, and you can see them 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.