Earnings Miss: PacWest Bancorp Missed EPS By 38% And Analysts Are Revising Their Forecasts

By
Simply Wall St
Published
October 17, 2020
NasdaqGS:PACW

Shareholders might have noticed that PacWest Bancorp (NASDAQ:PACW) filed its quarterly result this time last week. The early response was not positive, with shares down 2.9% to US$18.57 in the past week. Sales of US$292m surpassed estimates by 2.6%, although statutory earnings per share missed badly, coming in 38% below expectations at US$0.38 per share. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.

View our latest analysis for PacWest Bancorp

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NasdaqGS:PACW Earnings and Revenue Growth October 17th 2020

Taking into account the latest results, the most recent consensus for PacWest Bancorp from eight analysts is for revenues of US$1.12b in 2021 which, if met, would be a major 39% increase on its sales over the past 12 months. Earnings are expected to improve, with PacWest Bancorp forecast to report a statutory profit of US$2.82 per share. In the lead-up to this report, the analysts had been modelling revenues of US$1.10b and earnings per share (EPS) of US$2.94 in 2021. The analysts seem to have become a little more negative on the business after the latest results, given the minor downgrade to their earnings per share numbers for next year.

It might be a surprise to learn that the consensus price target was broadly unchanged at US$22.78, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. 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. The most optimistic PacWest Bancorp analyst has a price target of US$26.50 per share, while the most pessimistic values it at US$19.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await PacWest Bancorp shareholders.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the PacWest Bancorp's past performance and to peers in the same industry. It's clear from the latest estimates that PacWest Bancorp's rate of growth is expected to accelerate meaningfully, with the forecast 39% revenue growth noticeably faster than its historical growth of 2.6%p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 1.4% next year. Factoring in the forecast acceleration in revenue, it's pretty clear that PacWest Bancorp is expected to grow much faster than its industry.

The Bottom Line

The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for PacWest Bancorp. 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.

With that in mind, we wouldn't be too quick to come to a conclusion on PacWest Bancorp. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for PacWest Bancorp going out to 2022, and you can see them free on our platform here..

However, before you get too enthused, we've discovered 1 warning sign for PacWest Bancorp that you should be aware of.

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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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