Earnings Release: Here's Why Analysts Cut Their Wickes Group plc (LON:WIX) Price Target To UK£2.44

Investors in Wickes Group plc (LON:WIX) had a good week, as its shares rose 4.9% to close at UK£1.29 following the release of its interim results. Wickes Group reported in line with analyst predictions, delivering revenues of UK£822m and statutory earnings per share of UK£0.23, suggesting the business is executing well and in line with its plan. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Wickes Group after the latest results.

See our latest analysis for Wickes Group

Following the recent earnings report, the consensus from seven analysts covering Wickes Group is for revenues of UK£1.51b in 2022, implying a discernible 2.0% decline in sales compared to the last 12 months. Statutory earnings per share are expected to plummet 28% to UK£0.14 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of UK£1.52b and earnings per share (EPS) of UK£0.16 in 2022. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but the analysts did make a small dip in their earnings per share forecasts.

It might be a surprise to learn that the consensus price target fell 10% to UK£2.44, with the analysts clearly linking lower forecast earnings to the performance of the stock price. 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. The most optimistic Wickes Group analyst has a price target of UK£3.60 per share, while the most pessimistic values it at UK£1.50. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. Over the past year, revenues have declined around 0.04% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for an annualised 4.0% decline in revenue until the end of 2022. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 5.1% per year. So while a broad number of companies are forecast to grow, unfortunately Wickes Group is expected to see its sales affected worse than other companies in the industry.

The Bottom Line

The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Wickes Group. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Wickes Group's future valuation.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for Wickes Group going out to 2024, and you can see them free on our platform here.

It is also worth noting that we have found 2 warning signs for Wickes Group that you need to take into consideration.

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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.