One thing we could say about the analysts on Ellington Financial Inc. (NYSE:EFC) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.
After the downgrade, the five analysts covering Ellington Financial are now predicting revenues of US$182m in 2021. If met, this would reflect a huge improvement in sales compared to the last 12 months. Before the latest update, the analysts were foreseeing US$210m of revenue in 2021. The consensus view seems to have become more pessimistic on Ellington Financial, noting the measurable cut to revenue estimates in this update.
There was no particular change to the consensus price target of US$15.13, with Ellington Financial's latest outlook seemingly not enough to result in a change of 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. There are some variant perceptions on Ellington Financial, with the most bullish analyst valuing it at US$17.00 and the most bearish at US$13.25 per share. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that the analysts have a clear view on its prospects.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Ellington Financial's past performance and to peers in the same industry. For example, we noticed that Ellington Financial's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow many times over, well above its historical decline of 17% a year over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 23% next year. Not only are Ellington Financial's revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their revenue estimates for next year. They're also forecasting more rapid revenue growth than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Ellington Financial after today.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Ellington Financial, including dilutive stock issuance over the past year. For more information, you can click here to discover this and the 2 other concerns we've identified.
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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