The latest analyst coverage could presage a bad day for Alexander & Baldwin, Inc. (NYSE:ALEX), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
After this downgrade, Alexander & Baldwin's twin analysts are now forecasting revenues of US$334m in 2021. This would be a reasonable 7.2% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to shoot up 199% to US$0.41. Previously, the analysts had been modelling revenues of US$371m and earnings per share (EPS) of US$0.48 in 2021. Indeed, we can see that the analysts are a lot more bearish about Alexander & Baldwin's prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
Analysts made no major changes to their price target of US$21.67, suggesting the downgrades are not expected to have a long-term impact on Alexander & Baldwin's valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on Alexander & Baldwin, with the most bullish analyst valuing it at US$24.00 and the most bearish at US$18.00 per share. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.
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 Alexander & Baldwin's rate of growth is expected to accelerate meaningfully, with the forecast 9.7% annualised revenue growth to the end of 2021 noticeably faster than its historical growth of 0.4% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 6.4% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Alexander & Baldwin is expected to grow much faster than its industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Alexander & Baldwin. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Alexander & Baldwin.
In light of the downgrade, our automated discounted cash flow valuation tool suggests that Alexander & Baldwin could now be moderately overvalued. Learn why, and examine the assumptions that underpin our valuation by visiting our free platform here to learn more about our valuation approach.
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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