Analysts Just Shaved Their Power Integrations, Inc. (NASDAQ:POWI) Forecasts Dramatically

One thing we could say about the analysts on Power Integrations, Inc. (NASDAQ:POWI) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. 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.

Following the latest downgrade, the six analysts covering Power Integrations provided consensus estimates of US$622m revenue in 2023, which would reflect a chunky 11% decline on its sales over the past 12 months. Statutory earnings per share are anticipated to tumble 32% to US$2.26 in the same period. Prior to this update, the analysts had been forecasting revenues of US$718m and earnings per share (EPS) of US$2.93 in 2023. Indeed, we can see that the analysts are a lot more bearish about Power Integrations' prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.

Our analysis indicates that POWI is potentially overvalued!

It'll come as no surprise then, to learn that the analysts have cut their price target 15% to US$73.17. 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. Currently, the most bullish analyst values Power Integrations at US$85.00 per share, while the most bearish prices it at US$64.00. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting Power Integrations is an easy business to forecast or the underlying assumptions are obvious.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with a forecast 9.0% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 13% 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 7.1% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Power Integrations is expected to lag the wider 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 Power Integrations. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Power Integrations' revenues are expected to grow slower than the wider market. With a serious cut to next year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Power Integrations.

As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Power Integrations' financials, such as recent substantial insider selling. For more information, you can click here to discover this and the 1 other warning sign we've identified.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.