Analysts Just Made A Major Revision To Their Cerence Inc. (NASDAQ:CRNC) Revenue Forecasts

Market forces rained on the parade of Cerence Inc. (NASDAQ:CRNC) shareholders today, when the analysts downgraded their forecasts for this year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.

Following the latest downgrade, the current consensus, from the twelve analysts covering Cerence, is for revenues of US$371m in 2022, which would reflect a discernible 4.3% reduction in Cerence's sales over the past 12 months. Statutory earnings per share are supposed to plunge 21% to US$0.89 in the same period. Previously, the analysts had been modelling revenues of US$414m and earnings per share (EPS) of US$0.88 in 2022. So there's been a clear change in analyst sentiment in the recent update, with the analysts making a measurable cut to revenues and reconfirming their earnings per share estimates.

Check out our latest analysis for Cerence

The consensus price target was reduced 44% to US$64.33, with the lower revenue forecasts indicating negative sentiment towards Cerence, even though earnings forecasts were unchanged. 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 Cerence, with the most bullish analyst valuing it at US$150 and the most bearish at US$37.00 per share. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

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 5.8% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 11% over the last three years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 15% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Cerence is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that there's been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Cerence's revenues are expected to grow slower than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Cerence after today.

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 Cerence going out to 2024, and you can see them free on our platform here.

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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.