The Softchoice Corporation (TSE:SFTC) Analysts Have Been Trimming Their Sales Forecasts

The analysts covering Softchoice Corporation (TSE:SFTC) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Shares are up 9.5% to CA$15.92 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.

After the downgrade, the consensus from Softchoice's six analysts is for revenues of US$839m in 2023, which would reflect a perceptible 3.3% decline in sales compared to the last year of performance. Statutory earnings per share are presumed to leap 38% to US$0.69. Prior to this update, the analysts had been forecasting revenues of US$943m and earnings per share (EPS) of US$0.69 in 2023. Indeed we can see that the consensus opinion has undergone some fundamental changes following the recent consensus updates, with a measurable cut to revenues and some minor tweaks to earnings numbers.

Check out our latest analysis for Softchoice

The consensus has reconfirmed its price target of US$15.51, showing that the analysts don't expect weaker sales expectationsthis year to have a material impact on Softchoice's market value. 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 Softchoice, with the most bullish analyst valuing it at US$17.86 and the most bearish at US$13.00 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

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. One thing that stands out from these estimates is that revenues are expected to keep falling until the end of 2023, roughly in line with the historical decline of 7.2% per annum over the past year. Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 8.4% annually. So while a broad number of companies are forecast to grow, unfortunately Softchoice is expected to see its sales affected worse than other companies in the industry.

The Bottom Line

The most important thing to take away is that there's been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Softchoice after today.

A high debt burden combined with a downgrade of this magnitude always gives us some reason for concern, especially if these forecasts are just the first sign of a business downturn. To see more of our financial analysis, you can click through to our free platform to learn more about its balance sheet and specific concerns we've identified.

You can also see our analysis of Softchoice's Board and CEO remuneration and experience, and whether company insiders have been buying stock.

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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.