Market forces rained on the parade of First Majestic Silver Corp. (TSE:FR) shareholders today, when the analysts downgraded their forecasts for this year. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well. Shares are up 7.9% to CA$23.87 in the past week. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.
Following the downgrade, the current consensus from First Majestic Silver's twin analysts is for revenues of US$462m in 2021 which - if met - would reflect a major 27% increase on its sales over the past 12 months. Before the latest update, the analysts were foreseeing US$523m of revenue in 2021. It looks like forecasts have become a fair bit less optimistic on First Majestic Silver, given the measurable cut to revenue estimates.
The consensus price target rose 6.4% to CA$20.08, with the analysts clearly more optimistic about First Majestic Silver's prospects following this update. 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. Currently, the most bullish analyst values First Majestic Silver at CA$27.00 per share, while the most bearish prices it at CA$14.38. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the 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. The analysts are definitely expecting First Majestic Silver's growth to accelerate, with the forecast 27% annualised growth to the end of 2021 ranking favourably alongside historical growth of 8.9% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 6.3% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that First Majestic Silver is expected to grow much faster than its industry.
The Bottom Line
The most important thing to take away is that analysts cut their revenue estimates for this year. The analysts also expect revenues to grow faster than the wider market. There was also an increase in the price target, suggesting that there is more optimism baked into the forecasts than there was previously. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of First Majestic Silver going forwards.
Unanswered questions? We have estimates for First Majestic Silver from its twin analysts out until 2022, and you can see them free on our platform here.
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