The analysts covering Gränges AB (publ) (STO:GRNG) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next 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 latest consensus from Gränges' twin analysts is for revenues of kr15b in 2021, which would reflect a huge 44% improvement in sales compared to the last 12 months. Per-share earnings are expected to surge 99% to kr8.02. Previously, the analysts had been modelling revenues of kr17b and earnings per share (EPS) of kr8.99 in 2021. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a real cut to earnings per share numbers as well.
The average price target climbed 14% to kr116 despite the reduced earnings forecasts, suggesting that this earnings impact could be a positive for the stock, once it passes.
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. It's clear from the latest estimates that Gränges' rate of growth is expected to accelerate meaningfully, with the forecast 44% revenue growth noticeably faster than its historical growth of 15% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 6.1% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Gränges to grow faster than the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The increasing price target is not intuitively what we would expect to see, given these downgrades, and we'd suggest shareholders revisit their investment thesis before making a decision.
A high debt burden combined with a downgrade of this magnitude always gives us some reason for concern, especially if these forecasts are just the first sign of a business downturn. See why we're concerned about Gränges' balance sheet by visiting our risks dashboard for free on our platform here.
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