TORM plc (CPH:TRMD A) Analysts Just Slashed This Year's Revenue Estimates By 12%

Market forces rained on the parade of TORM plc (CPH:TRMD A) shareholders today, when the analysts downgraded their 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.

Following the downgrade, the latest consensus from TORM's four analysts is for revenues of US$1.1b in 2022, which would reflect a notable 20% improvement in sales compared to the last 12 months. Per-share earnings are expected to surge 399% to US$5.75. Previously, the analysts had been modelling revenues of US$1.2b and earnings per share (EPS) of US$5.75 in 2022. So there's been a clear change in analyst sentiment in the recent update, with the analysts making a substantial drop in revenues and reconfirming their earnings per share estimates.

View our latest analysis for TORM

The consensus has reconfirmed its price target of US$25.14, showing that the analysts don't expect weaker sales expectationsthis year to have a material impact on TORM's market value. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on TORM, with the most bullish analyst valuing it at US$199 and the most bearish at US$165 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.

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 clear from the latest estimates that TORM's rate of growth is expected to accelerate meaningfully, with the forecast 43% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 2.1% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue shrink 5.3% per year. So it's clear with the acceleration in growth, TORM is expected to grow meaningfully faster than the wider industry.

The Bottom Line

The most obvious conclusion from this consensus update is that there's been no major change in the business' prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. Sadly they also cut their revenue estimates, although at least the company is expected to perform a bit better 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 TORM after today.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple TORM analysts - going out to 2024, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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