Analysts Just Published A Bright New Outlook For ARC Resources Ltd.'s (TSE:ARX)

ARC Resources Ltd. (TSE:ARX) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with analysts modelling a real improvement in business performance. ARC Resources has also found favour with investors, with the stock up an impressive 14% to CA$17.96 over the past week. Could this upgrade be enough to drive the stock even higher?

After this upgrade, ARC Resources' twin analysts are now forecasting revenues of CA$7.0b in 2022. This would be a credible 6.2% improvement in sales compared to the last 12 months. Per-share earnings are expected to shoot up 249% to CA$2.83. Prior to this update, the analysts had been forecasting revenues of CA$5.9b and earnings per share (EPS) of CA$2.17 in 2022. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.

View our latest analysis for ARC Resources

Although the analysts have upgraded their earnings estimates, there was no change to the consensus price target of CA$24.38, suggesting that the forecast performance does not have a long term impact on the company's valuation. 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 ARC Resources, with the most bullish analyst valuing it at CA$29.00 and the most bearish at CA$16.00 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await ARC Resources shareholders.

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. It's pretty clear that there is an expectation that ARC Resources' revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 13% growth on an annualised basis. This is compared to a historical growth rate of 35% over the past five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 1.6% per year. So it's pretty clear that, while ARC Resources' revenue growth is expected to slow, it's still expected to grow faster than the industry itself.

The Bottom Line

The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. Fortunately, analysts also upgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So ARC Resources could be a good candidate for more research.

These earnings upgrades look like a sterling endorsement, but before diving in - you should know that we've spotted 4 potential risks with ARC Resources, including its declining profit margins. You can learn more, and discover the 3 other risks we've identified, for 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 upgrading 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.