Time To Worry? Analysts Are Downgrading Their Odfjell Drilling Ltd. (OB:ODL) Outlook

One thing we could say about the analysts on Odfjell Drilling Ltd. (OB:ODL) - 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) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. Investors however, have been notably more optimistic about Odfjell Drilling recently, with the stock price up an impressive 11% to kr24.84 in the past week. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.

Following the latest downgrade, the four analysts covering Odfjell Drilling provided consensus estimates of US$562m revenue in 2022, which would reflect a disturbing 36% decline on its sales over the past 12 months. Statutory earnings per share are anticipated to plunge 84% to US$0.044 in the same period. Previously, the analysts had been modelling revenues of US$800m and earnings per share (EPS) of US$0.26 in 2022. It looks like analyst sentiment has declined substantially, with a sizeable cut to revenue estimates and a large cut to earnings per share numbers as well.

View our latest analysis for Odfjell Drilling

Analysts made no major changes to their price target of US$3.18, suggesting the downgrades are not expected to have a long-term impact on Odfjell Drilling's valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Odfjell Drilling analyst has a price target of US$30.03 per share, while the most pessimistic values it at US$24.73. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

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. We would highlight that sales are expected to reverse, with a forecast 36% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 8.9% 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 4.7% per year. It's pretty clear that Odfjell Drilling's revenues are expected to perform substantially worse 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 Odfjell Drilling. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower 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 Odfjell Drilling after the downgrade.

After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Odfjell Drilling's business, like its declining profit margins. Learn more, and discover the 2 other risks we've identified, for 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.

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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.