The Consensus EPS Estimates For The a2 Milk Company Limited (NZSE:ATM) Just Fell Dramatically

The analysts covering The a2 Milk Company Limited (NZSE:ATM) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. 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 consensus from 14 analysts covering a2 Milk is for revenues of NZ$1.2b in 2021, implying a stressful 23% decline in sales compared to the last 12 months. Statutory earnings per share are anticipated to plummet 70% to NZ$0.13 in the same period. Prior to this update, the analysts had been forecasting revenues of NZ$1.4b and earnings per share (EPS) of NZ$0.32 in 2021. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a large cut to earnings per share numbers as well.

View our latest analysis for a2 Milk

It'll come as no surprise then, to learn that the analysts have cut their price target 27% to NZ$8.01. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on a2 Milk, with the most bullish analyst valuing it at NZ$13.50 and the most bearish at NZ$4.90 per share. 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.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the a2 Milk's past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with a forecast 41% annualised revenue decline to the end of 2021. That is a notable change from historical growth of 34% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 10.0% annually for the foreseeable future. It's pretty clear that a2 Milk'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 a2 Milk. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for a2 Milk 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. 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.
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