Need To Know: Analysts Just Made A Substantial Cut To Their Favelle Favco Berhad (KLSE:FAVCO) Estimates

One thing we could say about the analysts on Favelle Favco Berhad (KLSE:FAVCO) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.

Following the downgrade, the current consensus from Favelle Favco Berhad's two analysts is for revenues of RM567m in 2021 which - if met - would reflect a modest 2.2% increase on its sales over the past 12 months. Statutory earnings per share are presumed to increase 4.3% to RM0.21. Prior to this update, the analysts had been forecasting revenues of RM653m and earnings per share (EPS) of RM0.32 in 2021. Indeed, we can see that the analysts are a lot more bearish about Favelle Favco Berhad's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

View our latest analysis for Favelle Favco Berhad

Despite the cuts to forecast earnings, there was no real change to the RM2.70 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. 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. Currently, the most bullish analyst values Favelle Favco Berhad at RM3.00 per share, while the most bearish prices it at RM2.40. Still, with such a tight range of estimates, it suggests the analysts have a pretty good idea of what they think the company is worth.

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 Favelle Favco Berhad's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 2.2% growth to the end of 2021 on an annualised basis. That is well above its historical decline of 4.1% 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 22% per year. Although Favelle Favco Berhad's revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the broader 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 analysts also downgraded their revenue estimates, and industry data suggests that Favelle Favco Berhad's revenues are expected to grow slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Favelle Favco Berhad.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have analyst estimates for Favelle Favco Berhad going out as far as 2022, 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.

When trading Favelle Favco Berhad or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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