D2L Inc. (TSE:DTOL) Just Reported Earnings, And Analysts Cut Their Target Price

As you might know, D2L Inc. (TSE:DTOL) recently reported its quarterly numbers. Revenues of US$41m came in a modest 2.9% below forecasts. Statutory losses were a relative bright spot though, with a per-share loss of US$0.09 coming in a substantial 25% smaller than what the analysts had expected. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

View our latest analysis for D2L

Taking into account the latest results, the consensus forecast from D2L's six analysts is for revenues of US$170.4m in 2023, which would reflect a credible 4.2% improvement in sales compared to the last 12 months. The loss per share is expected to greatly reduce in the near future, narrowing 66% to US$0.35. Yet prior to the latest earnings, the analysts had been forecasting revenues of US$176.1m and losses of US$0.44 per share in 2023. While the revenue estimates fell, sentiment seems to have improved, with the analysts making a considerable decrease in losses per share in particular.

The analysts have cut their price target 27% to CA$10.66per share, suggesting that the declining revenue was a more crucial indicator than the forecast reduction in losses. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on D2L, with the most bullish analyst valuing it at CA$15.00 and the most bearish at CA$7.00 per share. With such a wide range in price targets, analysts are almost certainly betting on widely divergent outcomes in the underlying business. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would highlight that D2L's revenue growth is expected to slow, with the forecast 8.5% annualised growth rate until the end of 2023 being well below the historical 18% growth over the last year. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 7.8% annually. Factoring in the forecast slowdown in growth, it looks like D2L is forecast to grow at about the same rate as the wider industry.

The Bottom Line

The most obvious conclusion is that the analysts made no changes to their forecasts for a loss next year. Sadly, they also downgraded their sales forecasts, but the business is still expected to grow at roughly the same rate as the industry itself. Even so, earnings are more important to the intrinsic value of the business. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.

With that in mind, we wouldn't be too quick to come to a conclusion on D2L. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for D2L going out to 2025, and you can see them free on our platform here..

We don't want to rain on the parade too much, but we did also find 1 warning sign for D2L that you need to be mindful of.

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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.