Stock Analysis

Earnings Release: Here's Why Analysts Cut Their REV Group, Inc. Price Target To US$10.78

  •  Updated
NYSE:REVG
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REV Group, Inc. (NYSE:REVG) just released its first-quarter report and things are looking bullish. Revenues and losses per share were both better than expected, with revenues of US$532m leading estimates by 5.5%. Statutory losses were smaller than analysts expected, coming in at US$0.15 per share. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

View our latest analysis for REV Group

NYSE:REVG Past and Future Earnings, March 6th 2020
NYSE:REVG Past and Future Earnings, March 6th 2020

Taking into account the latest results, the current consensus from REV Group's seven analysts is for revenues of US$2.49b in 2020, which would reflect a reasonable 2.9% increase on its sales over the past 12 months. Earnings are expected to improve, with REV Group forecast to report a statutory profit of US$0.30 per share. Before this earnings report, analysts had been forecasting revenues of US$2.49b and earnings per share (EPS) of US$0.30 in 2020. The consensus analysts don't seem to have seen anything in these results that would have changed their view on the business, given there's been no major change to their estimates.

With no major changes to earnings forecasts, the consensus price target fell 7.0% to US$10.78, suggesting that analysts might have previously been hoping for an earnings upgrade. 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 REV Group, with the most bullish analyst valuing it at US$15.00 and the most bearish at US$6.75 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. It's pretty clear that analysts expect REV Group's revenue growth will slow down substantially, with revenues next year expected to grow 2.9%, compared to a historical growth rate of 5.5% over the past three years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 1.5% next year. Even after the forecast slowdown in growth, it seems obvious that analysts still thinkREV Group will grow faster than the wider market.

The Bottom Line

The most important thing to take away is that there's been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. Happily, there were no major changes to revenue forecasts, with analysts still expecting the business to grow faster than the wider market. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.

With that in mind, we wouldn't be too quick to come to a conclusion on REV Group. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple REV Group analysts - going out to 2022, and you can see them free on our platform here.

You can also see whether REV Group is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

About NYSE:REVG

REV Group

REV Group, Inc. designs, manufactures, and distributes specialty vehicles, and related aftermarket parts and services in the United States, Canada, Europe, Africa, and internationally.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation1
Future Growth3
Past Performance0
Financial Health3
Dividends1

Read more about these checks in the individual report sections or in our analysis model.

Mediocre balance sheet with moderate growth potential.