Earnings Miss: Service Properties Trust Missed EPS By 20% And Analysts Are Revising Their Forecasts

Simply Wall St
March 03, 2020

Service Properties Trust (NASDAQ:SVC) shares fell 8.7% to US$18.18 in the week since its latest annual results. It was not a great result overall. While revenues of US$2.3b were in line with analyst predictions, earnings were less than expected, missing statutory estimates by 20% to hit US$1.58 per share. This is an important time for investors, as they can track a company's performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. With this in mind, we've gathered the latest statutory forecasts to see what analysts are expecting for next year.

View our latest analysis for Service Properties Trust

NasdaqGS:SVC Past and Future Earnings, March 3rd 2020
NasdaqGS:SVC Past and Future Earnings, March 3rd 2020

Taking into account the latest results, the most recent consensus for Service Properties Trust from sole analyst is for revenues of US$2.40b in 2020, which is an okay 3.7% increase on its sales over the past 12 months. Statutory earnings per share are expected to fall 18% to US$1.30 in the same period. Yet prior to the latest earnings, analysts had been forecasting revenues of US$2.40b and earnings per share (EPS) of US$1.51 in 2020. So there's definitely been a decline in analyst sentiment after the latest results, noting the substantial drop in new EPS forecasts.

It might be a surprise to learn that the consensus price target fell 6.8% to US$24.00, with analysts clearly linking lower forecast earnings to the performance of the stock price.

Further, we can compare these estimates to past performance, and see how Service Properties Trust forecasts compare to the wider market's forecast performance. We would highlight that Service Properties Trust's revenue growth is expected to slow, with forecast 3.7% increase next year well below the historical 5.6%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 5.0% next year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect Service Properties Trust to grow slower than the wider market.

The Bottom Line

The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Service Properties Trust's revenues are expected to perform worse 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 Service Properties Trust. 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.

It might also be worth considering whether Service Properties Trust's debt load is appropriate, using our debt analysis tools on the Simply Wall St 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.

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