Analysts Just Shaved Their Gulf Keystone Petroleum Limited (LON:GKP) Forecasts Dramatically

The analysts covering Gulf Keystone Petroleum Limited (LON:GKP) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.

After the downgrade, the four analysts covering Gulf Keystone Petroleum are now predicting revenues of US$201m in 2025. If met, this would reflect a substantial 33% improvement in sales compared to the last 12 months. Per-share earnings are expected to soar 536% to US$0.21. Before this latest update, the analysts had been forecasting revenues of US$268m and earnings per share (EPS) of US$0.37 in 2025. It looks like analyst sentiment has declined substantially, with a pretty serious reduction to revenue estimates and a pretty serious decline to earnings per share numbers as well.

View our latest analysis for Gulf Keystone Petroleum

The average price target climbed 6.0% to US$2.41 despite the reduced earnings forecasts, suggesting that this earnings impact could be a positive for the stock, once it passes. 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. Currently, the most bullish analyst values Gulf Keystone Petroleum at US$2.92 per share, while the most bearish prices it at US$1.89. 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.

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. One thing stands out from these estimates, which is that Gulf Keystone Petroleum is forecast to grow faster in the future than it has in the past, with revenues expected to display 33% annualised growth until the end of 2025. If achieved, this would be a much better result than the 0.08% annual decline over the past five years. What's also interesting is that our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue decline 0.4% annually for the foreseeable future. So although Gulf Keystone Petroleum is expected to return to growth, it's also expected to grow revenues during a time when the wider industry is estimated to see revenue decline.

The Bottom Line

The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Sadly they also cut their revenue estimates, although at least the company is expected to perform a bit better than the wider market. The increasing price target is not intuitively what we would expect to see, given these downgrades, and we'd suggest shareholders revisit their investment thesis before making a decision.

Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Gulf Keystone Petroleum going out to 2027, and you can see them free on our platform here.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks with high insider ownership.

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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.