Growth Investors: Industry Analysts Just Upgraded Their A2A S.p.A. (BIT:A2A) Revenue Forecasts By 11%

Celebrations may be in order for A2A S.p.A. (BIT:A2A) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. The revenue forecast for next year has experienced a facelift, with analysts now much more optimistic on its sales pipeline.

Following the latest upgrade, the six analysts covering A2A provided consensus estimates of €18b revenue in 2023, which would reflect an uncomfortable 15% decline on its sales over the past 12 months. Statutory earnings per share are supposed to dive 22% to €0.13 in the same period. Before this latest update, the analysts had been forecasting revenues of €17b and earnings per share (EPS) of €0.13 in 2023. The most recent forecasts are noticeably more optimistic, with a decent improvement in revenue estimates and a lift to earnings per share as well.

Our analysis indicates that A2A is potentially undervalued!

Although the analysts have upgraded their earnings estimates, there was no change to the consensus price target of €1.67, suggesting that the forecast performance does not have a long term impact on the company's valuation. 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. There are some variant perceptions on A2A, with the most bullish analyst valuing it at €2.50 and the most bearish at €1.35 per share. 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.

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. We would highlight that sales are expected to reverse, with a forecast 13% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 24% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 0.8% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - A2A is expected to lag the wider industry.

The Bottom Line

The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for next year, expecting improving business conditions. Pleasantly, analysts also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow slower than the wider market. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at A2A.

Analysts are definitely bullish on A2A, but no company is perfect. Indeed, you should know that there are several potential concerns to be aware of, including its declining profit margins. For more information, you can click through to our platform to learn more about this and the 4 other warning signs we've identified .

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.

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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.