Frontier Developments plc (LON:FDEV) Analysts Just Cut Their EPS Forecasts Substantially

Today is shaping up negative for Frontier Developments plc (LON:FDEV) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.

Following the downgrade, the latest consensus from Frontier Developments' 13 analysts is for revenues of UK£116m in 2022, which would reflect a substantial 28% improvement in sales compared to the last 12 months. Statutory earnings per share are anticipated to crater 28% to UK£0.40 in the same period. Before this latest update, the analysts had been forecasting revenues of UK£140m and earnings per share (EPS) of UK£0.69 in 2022. Indeed, we can see that the analysts are a lot more bearish about Frontier Developments' prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

See our latest analysis for Frontier Developments

The consensus price target fell 21% to UK£24.77, with the weaker earnings outlook clearly leading analyst valuation estimates. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Frontier Developments at UK£30.00 per share, while the most bearish prices it at UK£17.60. 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. The period to the end of 2022 brings more of the same, according to the analysts, with revenue forecast to display 28% growth on an annualised basis. That is in line with its 24% annual growth over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 17% per year. So although Frontier Developments is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider industry.

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. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Frontier Developments' financials, such as concerns around earnings quality. Learn more, and discover the 2 other risks we've identified, for 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.

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.

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