BW Energy Limited (OB:BWE) Analysts Just Slashed This Year's Estimates

The latest analyst coverage could presage a bad day for BW Energy Limited (OB:BWE), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business. The stock price has risen 4.1% to kr29.45 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 most recent consensus for BW Energy from its three analysts is for revenues of US$698m in 2023 which, if met, would be a major 151% increase on its sales over the past 12 months. Statutory earnings per share are presumed to bounce 459% to US$0.98. Before this latest update, the analysts had been forecasting revenues of US$803m and earnings per share (EPS) of US$1.21 in 2023. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a real cut to earnings per share numbers as well.

See our latest analysis for BW Energy

Analysts made no major changes to their price target of US$4.17, suggesting the downgrades are not expected to have a long-term impact on BW Energy'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. The most optimistic BW Energy analyst has a price target of US$48.32 per share, while the most pessimistic values it at US$36.01. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. The analysts are definitely expecting BW Energy's growth to accelerate, with the forecast 151% annualised growth to the end of 2023 ranking favourably alongside historical growth of 13% per annum over the past three years. Compare this with other companies in the same industry, which are forecast to see a revenue decline of 9.7% annually. It seems obvious that as part of the brighter growth outlook, BW Energy is expected to grow faster than 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 BW Energy. Unfortunately, they also downgraded their revenue estimates, and our data indicates sales are expected to outperform the wider market. Even so, earnings per share are more important to the intrinsic value of the business. 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 BW Energy after the downgrade.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple BW Energy analysts - going out to 2025, 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 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.