These Analysts Just Made A Meaningful Downgrade To Their VA Tech Wabag Limited (NSE:WABAG) EPS Forecasts

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. The stock price has risen 8.7% to ₹545 over 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.

Following the downgrade, the latest consensus from VA Tech Wabag's two analysts is for revenues of ₹29b in 2024, which would reflect a reasonable 4.6% improvement in sales compared to the last 12 months. Per-share earnings are expected to bounce 370% to ₹34.90. Before this latest update, the analysts had been forecasting revenues of ₹41b and earnings per share (EPS) of ₹43.90 in 2024. Indeed, we can see that the analysts are a lot more bearish about VA Tech Wabag's prospects, administering a pretty serious reduction to revenue estimates and slashing their EPS estimates to boot.

See our latest analysis for VA Tech Wabag

Analysts made no major changes to their price target of ₹625, suggesting the downgrades are not expected to have a long-term impact on VA Tech Wabag's valuation.

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. The analysts are definitely expecting VA Tech Wabag's growth to accelerate, with the forecast 9.4% annualised growth to the end of 2024 ranking favourably alongside historical growth of 1.4% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 7.5% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect VA Tech Wabag 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. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on VA Tech Wabag after the downgrade.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have analyst estimates for VA Tech Wabag going out as far as 2026, and you can see them 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.