Stock Analysis

The Ares Management Corporation (NYSE:ARES) Analysts Have Been Trimming Their Sales Forecasts

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Market forces rained on the parade of Ares Management Corporation (NYSE:ARES) shareholders today, when the analysts downgraded their forecasts for this year. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.

Following the latest downgrade, the current consensus, from the ten analysts covering Ares Management, is for revenues of US$1.9b in 2021, which would reflect a substantial 23% reduction in Ares Management's sales over the past 12 months. Per-share earnings are expected to shoot up 42% to US$2.08. Previously, the analysts had been modelling revenues of US$2.1b and earnings per share (EPS) of US$2.29 in 2021. Indeed, we can see that analyst sentiment has declined measurably after the new consensus came out, with a substantial drop in revenue estimates and a small dip in EPS estimates to boot.

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NYSE:ARES Earnings and Revenue Growth May 4th 2021

Despite the cuts to forecast earnings, there was no real change to the US$63.50 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. 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 Ares Management at US$68.00 per share, while the most bearish prices it at US$60.00. This is a very narrow spread of estimates, implying either that Ares Management is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Ares Management's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 29% by the end of 2021. This indicates a significant reduction from annual growth of 12% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 2.7% annually for the foreseeable future. It's pretty clear that Ares Management's revenues are expected to perform substantially worse 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. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Ares Management's revenues are expected to grow slower than the wider market. Given the stark change in sentiment, we'd understand if investors became more cautious on Ares Management after today.

As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Ares Management's financials, such as dilutive stock issuance over the past year. Learn more, and discover the 3 other warning signs we've identified, for free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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