Analysts Are More Bearish On VA Tech Wabag Limited (NSE:WABAG) Than They Used To Be

Today is shaping up negative for VA Tech Wabag Limited (NSE:WABAG) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon. Shares are up 8.4% to ₹250 in the past week. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.

After the downgrade, the dual analysts covering VA Tech Wabag are now predicting revenues of ₹33b in 2023. If met, this would reflect a meaningful 11% improvement in sales compared to the last 12 months. Per-share earnings are expected to climb 13% to ₹23.93. Previously, the analysts had been modelling revenues of ₹37b and earnings per share (EPS) of ₹30.72 in 2023. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a large cut to earnings per share numbers as well.

View our latest analysis for VA Tech Wabag

The consensus price target fell 15% to ₹390, with the weaker earnings outlook clearly leading analyst valuation estimates. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on VA Tech Wabag, with the most bullish analyst valuing it at ₹448 and the most bearish at ₹337 per share. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that the analysts have a clear view on its prospects.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. For example, we noticed that VA Tech Wabag's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 11% growth to the end of 2023 on an annualised basis. That is well above its historical decline of 4.1% a year 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 9.6% annually. So it looks like VA Tech Wabag is expected to grow at about the same rate as 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 VA Tech Wabag. Lamentably, they also downgraded their sales forecasts, but the business is still expected to grow at roughly the same rate as the market itself. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of VA Tech Wabag.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At least one analyst has provided forecasts out to 2025, which can be seen for 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.