PennyMac Financial Services, Inc. (NYSE:PFSI) Analysts Just Cut Their EPS Forecasts Substantially

Today is shaping up negative for PennyMac Financial Services, Inc. (NYSE:PFSI) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.

After the downgrade, the consensus from PennyMac Financial Services' four analysts is for revenues of US$2.0b in 2022, which would reflect a sizeable 38% decline in sales compared to the last year of performance. Statutory earnings per share are supposed to tumble 45% to US$8.09 in the same period. Prior to this update, the analysts had been forecasting revenues of US$2.4b and earnings per share (EPS) of US$9.68 in 2022. Indeed, we can see that the analysts are a lot more bearish about PennyMac Financial Services' prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

View our latest analysis for PennyMac Financial Services

The consensus price target fell 7.2% to US$71.38, with the weaker earnings outlook clearly leading analyst valuation estimates. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values PennyMac Financial Services at US$90.00 per share, while the most bearish prices it at US$53.00. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with a forecast 48% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 30% 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 3.7% per year. It's pretty clear that PennyMac Financial Services' 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 PennyMac Financial Services. 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.

After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with PennyMac Financial Services' business, like its declining profit margins. For more information, you can click here to discover this and the 3 other flags 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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