What Does The Future Hold For Centrica plc (LON:CNA)? These Analysts Have Been Cutting Their Estimates

Today is shaping up negative for Centrica plc (LON:CNA) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative. At UK£1.34, shares are up 5.8% in the past 7 days. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

Following the latest downgrade, the ten analysts covering Centrica provided consensus estimates of UK£28b revenue in 2023, which would reflect a measurable 5.5% decline on its sales over the past 12 months. Statutory earnings per share are supposed to crater 70% to UK£0.23 in the same period. Prior to this update, the analysts had been forecasting revenues of UK£33b and earnings per share (EPS) of UK£0.25 in 2023. It looks like analyst sentiment has fallen somewhat in this update, with a substantial drop in revenue estimates and a minor downgrade to earnings per share numbers as well.

See our latest analysis for Centrica

Analysts made no major changes to their price target of UK£1.48, suggesting the downgrades are not expected to have a long-term impact on Centrica's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Centrica at UK£1.70 per share, while the most bearish prices it at UK£1.10. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

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. We would highlight that sales are expected to reverse, with a forecast 11% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 0.3% over the last five years. Yet aggregate analyst estimates for other companies in the industry suggest that industry revenues are forecast to decline 1.0% per year. The forecasts do look bearish for Centrica, since they're expecting it to shrink faster than the 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. Unfortunately they also cut their revenue estimates for this year, and they expect sales to lag the wider market. That said, earnings per share are more important for creating value for shareholders. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Centrica going forwards.

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 Centrica's financials, such as concerns around earnings quality. For more information, you can click here to discover this and the 1 other flag 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.