Investors in United Fire Group, Inc. (NASDAQ:UFCS) had a good week, as its shares rose 7.4% to close at US$32.50 following the release of its first-quarter results. It was a solid earnings report, with revenues and earnings both coming in very strong. Revenues were 11% higher than the analysts had forecast, at US$301m, while the company also delivered a surprise statutory profit, against analyst expectations of a loss. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following the recent earnings report, the consensus from twin analysts covering United Fire Group is for revenues of US$1.06b in 2021, implying a not inconsiderable 11% decline in sales compared to the last 12 months. Earnings are expected to improve, with United Fire Group forecast to report a statutory profit of US$0.53 per share. Before this earnings report, the analysts had been forecasting revenues of US$1.11b and earnings per share (EPS) of US$0.96 in 2021. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a large cut to earnings per share estimates.
Despite the cuts to forecast earnings, there was no real change to the US$36.50 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 14% by the end of 2021. This indicates a significant reduction from annual growth of 2.4% 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 2.8% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - United Fire Group is expected to lag the wider industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for United Fire Group. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. 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 United Fire Group. Long-term earnings power is much more important than next year's profits. At least one analyst has provided forecasts out to 2022, which can be seen for free on our platform here.
Plus, you should also learn about the 1 warning sign we've spotted with United Fire Group .
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