What Does The Future Hold For Synlait Milk Limited (NZSE:SML)? These Analysts Have Been Cutting Their Estimates

Market forces rained on the parade of Synlait Milk Limited (NZSE:SML) shareholders today, when the analysts downgraded their forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.

Following the downgrade, the consensus from seven analysts covering Synlait Milk is for revenues of NZ$1.3b in 2021, implying a noticeable 3.8% decline in sales compared to the last 12 months. Before the latest update, the analysts were foreseeing NZ$1.4b of revenue in 2021. The consensus view seems to have become more pessimistic on Synlait Milk, noting the measurable cut to revenue estimates in this update.

View our latest analysis for Synlait Milk

The consensus price target fell 14% to NZ$5.66, with the analysts clearly less optimistic about Synlait Milk's valuation following this update. 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. There are some variant perceptions on Synlait Milk, with the most bullish analyst valuing it at NZ$7.02 and the most bearish at NZ$4.60 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Synlait Milk's past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with the forecast 3.8% revenue decline a notable change from historical growth of 20% 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 7.2% next year. It's pretty clear that Synlait Milk's revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The most important thing to take away is that analysts cut their revenue estimates for this year. They're also anticipating slower revenue growth than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Given the stark change in sentiment, we'd understand if investors became more cautious on Synlait Milk after today.

That said, the analysts might have good reason to be negative on Synlait Milk, given dilutive stock issuance over the past year. For more information, you can click here to discover this and the 2 other risks we've identified.

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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