Live Oak Bancshares, Inc. (NASDAQ:LOB) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. The analysts greatly increased their revenue estimates, suggesting a stark improvement in business fundamentals. The stock price has risen 5.6% to US$60.32 over the past week, suggesting investors are becoming more optimistic. Whether the upgrade is enough to drive the stock price higher is yet to be seen, however.
Following the upgrade, the current consensus from Live Oak Bancshares' five analysts is for revenues of US$426m in 2021 which - if met - would reflect a meaningful 11% increase on its sales over the past 12 months. Statutory earnings per share are anticipated to descend 12% to US$3.49 in the same period. Before this latest update, the analysts had been forecasting revenues of US$373m and earnings per share (EPS) of US$2.60 in 2021. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.
Although the analysts have upgraded their earnings estimates, there was no change to the consensus price target of US$74.00, suggesting that the forecast performance does not have a long term impact on the company's valuation. 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. The most optimistic Live Oak Bancshares analyst has a price target of US$80.00 per share, while the most pessimistic values it at US$65.00. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.
Of course, another way to look at these forecasts is to place them into context against the industry itself. The analysts are definitely expecting Live Oak Bancshares' growth to accelerate, with the forecast 22% annualised growth to the end of 2021 ranking favourably alongside historical growth of 14% per annum 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 3.8% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Live Oak Bancshares is expected to grow much faster than its industry.
The Bottom Line
The biggest takeaway for us from these new estimates is that analysts upgraded their earnings per share estimates, with improved earnings power expected for this year. Fortunately, analysts also upgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So Live Oak Bancshares could be a good candidate for more research.
These earnings upgrades look like a sterling endorsement, but before diving in - you should know that we've spotted 2 potential concern with Live Oak Bancshares, including dilutive stock issuance over the past year. For more information, you can click through to our platform to learn more about this and the 1 other concern 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 upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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