Upgrade: Analysts Just Made A Sizeable Increase To Their ERG S.p.A. (BIT:ERG) Forecasts

ERG S.p.A. (BIT:ERG) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. The analysts greatly increased their revenue estimates, suggesting a stark improvement in business fundamentals. ERG has also found favour with investors, with the stock up an impressive 12% to €33.40 over the past week. We'll be curious to see if these new estimates convince the market to lift the stock price higher still.

Following the latest upgrade, the current consensus, from the five analysts covering ERG, is for revenues of €692m in 2022, which would reflect a concerning 34% reduction in ERG's sales over the past 12 months. Statutory earnings per share are anticipated to decrease 3.9% to €1.11 in the same period. Before this latest update, the analysts had been forecasting revenues of €621m and earnings per share (EPS) of €0.80 in 2022. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.

See our latest analysis for ERG

Although the analysts have upgraded their earnings estimates, there was no change to the consensus price target of €35.30, suggesting that the forecast performance does not have a long term impact on the company's valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on ERG, with the most bullish analyst valuing it at €38.00 and the most bearish at €29.00 per share. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the ERG's past performance and to peers in the same industry. One more thing stood out to us about these estimates, and it's the idea that ERG's decline is expected to accelerate, with revenues forecast to fall at an annualised rate of 34% to the end of 2022. This tops off a historical decline of 1.3% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 0.9% per year. So it's pretty clear that, while it does have declining revenues, the analysts also expect ERG to suffer worse than 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 this year, expecting improving business conditions. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow slower than the wider market. The lack of change in the price target is puzzling, but with a serious upgrade to this year's earnings expectations, it might be time to take another look at ERG.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple ERG analysts - going out to 2024, and you can see them 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 upgrading 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.