Today is shaping up negative for Empiric Student Property plc (LON:ESP) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
After the downgrade, the consensus from Empiric Student Property's four analysts is for revenues of UK£50m in 2021, which would reflect a discernible 2.8% decline in sales compared to the last year of performance. Losses are expected to turn into profits real soon, with the analysts forecasting UK£0.052 in per-share earnings. Before this latest update, the analysts had been forecasting revenues of UK£56m and earnings per share (EPS) of UK£0.091 in 2021. Indeed, we can see that the analysts are a lot more bearish about Empiric Student Property's prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
The average price target climbed 5.8% to UK£1.09 despite the reduced earnings forecasts, suggesting that this earnings impact could be a positive for the stock, once it passes. 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 Empiric Student Property analyst has a price target of UK£1.12 per share, while the most pessimistic values it at UK£1.00. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.
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. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 5.5% by the end of 2021. This indicates a significant reduction from annual growth of 12% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 6.2% annually for the foreseeable future. It's pretty clear that Empiric Student Property's revenues are expected to perform substantially worse 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 Empiric Student Property. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. There was also a nice increase in the price target, with analysts apparently feeling that the intrinsic value of the business is improving. Given the stark change in sentiment, we'd understand if investors became more cautious on Empiric Student Property after today.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Empiric Student Property analysts - going out to 2023, 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 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.
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