Downgrade: Here's How This Analyst Sees Euroseas Ltd. (NASDAQ:ESEA) Performing In The Near Term

The analyst covering Euroseas Ltd. (NASDAQ:ESEA) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analyst has soured majorly on the business.

Following the latest downgrade, the lone analyst covering Euroseas provided consensus estimates of US$175m revenue in 2023, which would reflect a perceptible 4.2% decline on its sales over the past 12 months. Statutory earnings per share are supposed to dive 27% to US$10.97 in the same period. Before this latest update, the analyst had been forecasting revenues of US$199m and earnings per share (EPS) of US$13.61 in 2023. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a real cut to earnings per share numbers as well.

See our latest analysis for Euroseas

It'll come as no surprise then, to learn that the analyst has cut their price target 7.1% to US$39.50. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Euroseas at US$49.00 per share, while the most bearish prices it at US$30.00. 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 Euroseas 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. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 4.2% by the end of 2023. This indicates a significant reduction from annual growth of 40% over the last five years. Yet aggregate analyst estimates for other companies in the industry suggest that industry revenues are forecast to decline 9.2% per year. So it's pretty clear that Euroseas' revenues are expected to shrink slower than the wider industry.

The Bottom Line

The biggest issue in the new estimates is that the analyst has reduced their earnings per share estimates, suggesting business headwinds lay ahead for Euroseas. Unfortunately, they also downgraded their revenue estimates, and our data indicates sales are expected to outperform the wider market. Even so, earnings per share are more important to the intrinsic value of the business. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Euroseas.

After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Euroseas' business, like a weak balance sheet. For more information, you can click here to discover this and the 2 other flags we've identified.

We also provide an overview of the Euroseas Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, 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.