It's been a pretty great week for Subsea 7 S.A. (OB:SUBC) shareholders, with its shares surging 17% to kr75.48 in the week since its latest quarterly results. Things were not great overall, with a surprise (statutory) loss of US$0.14 per share on revenues of US$947m, even though the analysts had been expecting a profit. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.
Taking into account the latest results, the most recent consensus for Subsea 7 from 20 analysts is for revenues of US$4.01b in 2021 which, if met, would be a notable 20% increase on its sales over the past 12 months. Subsea 7 is also expected to turn profitable, with statutory earnings of US$0.24 per share. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$3.94b and earnings per share (EPS) of US$0.26 in 2021. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but the analysts did make a minor downgrade to their earnings per share forecasts.
The consensus price target held steady at US$9.74, with the analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. 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. There are some variant perceptions on Subsea 7, with the most bullish analyst valuing it at US$115 and the most bearish at US$68.97 per share. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely different views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. One thing stands out from these estimates, which is that Subsea 7 is forecast to grow faster in the future than it has in the past, with revenues expected to grow 20%. If achieved, this would be a much better result than the 4.4% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue grow 0.7% per year. So it looks like Subsea 7 is expected to grow faster than its competitors, at least for a while.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Subsea 7. Happily, there were no major changes to revenue forecasts, with the business still expected to grow faster than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Subsea 7 analysts - going out to 2024, and you can see them free on our platform here.
We also provide an overview of the Subsea 7 Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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