Today is shaping up negative for McPhy Energy S.A. (EPA:MCPHY) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.
Following the downgrade, the most recent consensus for McPhy Energy from its six analysts is for revenues of €15m in 2021 which, if met, would be a meaningful 12% increase on its sales over the past 12 months. Losses are supposed to balloon 30% to €0.44 per share. However, before this estimates update, the consensus had been expecting revenues of €18m and €0.40 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target fell 8.7% to €32.33, implicitly signalling that lower earnings per share are a leading indicator for McPhy Energy's valuation. 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. The most optimistic McPhy Energy analyst has a price target of €41.00 per share, while the most pessimistic values it at €27.00. 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.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the McPhy Energy's past performance and to peers in the same industry. We would highlight that McPhy Energy's revenue growth is expected to slow, with the forecast 12% annualised growth rate until the end of 2021 being well below the historical 17% p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 15% per year. Factoring in the forecast slowdown in growth, it seems obvious that McPhy Energy is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. 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 McPhy Energy after today.
There might be good reason for analyst bearishness towards McPhy Energy, like major dilution from new stock issuance in the past year. For more information, you can click here to discover this and the 2 other warning signs we've identified.
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