Things Look Grim For Aviva plc (LON:AV.) After Today's Downgrade

One thing we could say about the analysts on Aviva plc (LON:AV.) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.

Following the downgrade, the most recent consensus for Aviva from its eight analysts is for revenues of UK£29b in 2022 which, if met, would be a sizeable 75% increase on its sales over the past 12 months. Statutory earnings per share are presumed to bounce 420% to UK£0.46. Previously, the analysts had been modelling revenues of UK£33b and earnings per share (EPS) of UK£0.53 in 2022. Indeed, we can see that the analysts are a lot more bearish about Aviva's prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.

Check out our latest analysis for Aviva

The consensus price target fell 15% to UK£5.42, with the weaker earnings outlook clearly leading analyst valuation estimates. 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. The most optimistic Aviva analyst has a price target of UK£7.11 per share, while the most pessimistic values it at UK£4.10. 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.

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. One thing stands out from these estimates, which is that Aviva is forecast to grow faster in the future than it has in the past, with revenues expected to display 75% annualised growth until the end of 2022. If achieved, this would be a much better result than the 6.8% annual decline over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 8.0% annually. Not only are Aviva's revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Aviva. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Aviva.

So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Aviva, including its declining profit margins. For more information, you can click here to discover this and the 3 other warning signs we've identified.

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 that insiders are buying.

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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.