It's been a good week for Cenovus Energy Inc. (TSE:CVE) shareholders, because the company has just released its latest annual results, and the shares gained 2.9% to CA$8.49. It was a moderately negative result overall - revenue fell 2.1% short of analyst estimates at CA$13b, and statutory losses were in line with analyst expectations, at CA$1.94 per share. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
After the latest results, the six analysts covering Cenovus Energy are now predicting revenues of CA$31.5b in 2021. If met, this would reflect a sizeable 138% improvement in sales compared to the last 12 months. Earnings are expected to improve, with Cenovus Energy forecast to report a statutory profit of CA$0.12 per share. Before this earnings announcement, the analysts had been modelling revenues of CA$33.9b and losses of CA$0.19 per share in 2021. While we note the small dip in to the revenue outlook, the analysts are now also predicting for the business to become profitable next year - sooner than previously forecast - which looks like a pretty clear lift in expectations.
There's been no real change to the average price target of CA$9.93, with the lower revenue and higher earnings forecasts not expected to meaningfully impact the company's valuation over a longer timeframe. 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. There are some variant perceptions on Cenovus Energy, with the most bullish analyst valuing it at CA$13.00 and the most bearish at CA$7.00 per share. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. The analysts are definitely expecting Cenovus Energy's growth to accelerate, with the forecast 138% growth ranking favourably alongside historical growth of 8.8% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 9.8% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Cenovus Energy to grow faster than the wider industry.
The Bottom Line
The most important thing to take away is that the analysts now expect Cenovus Energy to become profitable next year, compared to previous expectations that it would report a loss. They also downgraded their revenue estimates, although industry data suggests that Cenovus Energy's revenues are expected to grow faster than the wider industry. Still, earnings per share are more important to value creation for shareholders. The consensus price target held steady at CA$9.93, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn't be too quick to come to a conclusion on Cenovus Energy. 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 Cenovus Energy going out to 2022, 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 3 warning signs for Cenovus Energy (2 are concerning!) that you need to be mindful of.
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