Today is shaping up negative for Formula One Group (NASDAQ:FWON.K) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.
After the downgrade, the ten analysts covering Formula One Group are now predicting revenues of US$1.9b in 2021. If met, this would reflect a major 58% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 84% to US$0.43. However, before this estimates update, the consensus had been expecting revenues of US$2.2b and US$0.20 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target was broadly unchanged at US$48.63, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Formula One Group analyst has a price target of US$53.00 per share, while the most pessimistic values it at US$37.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Formula One Group shareholders.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's clear from the latest estimates that Formula One Group's rate of growth is expected to accelerate meaningfully, with the forecast 58% annualised revenue growth to the end of 2021 noticeably faster than its historical growth of 10% p.a. over the past three years. Compare this with other companies in the same industry, which are forecast to grow their revenue 16% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Formula One Group to grow faster than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Formula One Group. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Formula One Group after the downgrade.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Formula One Group going out to 2025, and you can see them free on our platform here.
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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