Need To Know: Analysts Are Much More Bullish On STEP Energy Services Ltd. (TSE:STEP)

STEP Energy Services Ltd. (TSE:STEP) shareholders will have a reason to smile today, with the analysts making substantial upgrades to next year's forecasts. The analysts greatly increased their revenue estimates, suggesting a stark improvement in business fundamentals. STEP Energy Services has also found favour with investors, with the stock up a worthy 30% to CA$1.05 over the past week. It will be interesting to see if today's upgrade is enough to propel the stock even higher.

Following the latest upgrade, the current consensus, from the five analysts covering STEP Energy Services, is for revenues of CA$410m in 2021, which would reflect a small 3.2% reduction in STEP Energy Services' sales over the past 12 months. Losses are predicted to fall substantially, shrinking 71% to CA$0.55. Yet prior to the latest estimates, the analysts had been forecasting revenues of CA$339m and losses of CA$0.71 per share in 2021. We can see there's definitely been a change in sentiment in this update, with the analysts administering a sizeable upgrade to next year's revenue estimates, while at the same time reducing their loss estimates.

Check out our latest analysis for STEP Energy Services

It will come as no surprise to learn that the analysts have increased their price target for STEP Energy Services 81% to CA$1.10 on the back of these upgrades. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on STEP Energy Services, with the most bullish analyst valuing it at CA$2.00 and the most bearish at CA$0.45 per share. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 3.2% revenue decline a notable change from historical growth of 23% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 6.3% annually for the foreseeable future. It's pretty clear that STEP Energy Services' revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The most important thing here is that analysts reduced their loss per share estimates for next year, reflecting increased optimism around STEP Energy Services' prospects. Pleasantly, analysts also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow slower than the wider market. Given that the consensus looks almost universally bullish, with a substantial increase to forecasts and a higher price target, STEP Energy Services could be worth investigating further.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for STEP Energy Services going out to 2022, and you can see them free on our platform here..

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This article by Simply Wall St is general in nature. 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.
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