A week ago, Sembcorp Marine Ltd (SGX:S51) came out with a strong set of annual numbers that could potentially lead to a re-rate of the stock. Revenues and losses per share were both better than expected, with revenues of S$2.9b leading estimates by 6.4%. Statutory losses were smaller than analysts expected, coming in at S$0.066 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. We've gathered the most recent statutory forecasts to see whether analysts have changed their earnings models, following these results.
Taking into account the latest results, the current consensus, from the 13 analysts covering Sembcorp Marine, is for revenues of S$2.77b in 2020, which would reflect a perceptible 4.0% reduction in Sembcorp Marine's sales over the past 12 months. Per-share statutory losses are expected to explode, reaching S$0.036 per share. Yet prior to the latest earnings, analysts had been forecasting revenues of S$2.84b and losses of S$0.0015 per share in 2020. Analysts seem less optimistic after the recent results, reducing their sales forecasts and making a large cut to earnings per share forecasts.
The average analyst price target fell 5.7% to S$1.38, implicitly signalling that lower earnings per share are a leading indicator for Sembcorp Marine'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. The most optimistic Sembcorp Marine analyst has a price target of S$2.51 per share, while the most pessimistic values it at S$0.96. With such a wide range in price targets, analysts are almost certainly baking in outcomes as diverse as total success and probable failure in the underlying business. With this in mind, we wouldn't assign too much meaning to the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. Compare this against analyst estimates for companies in the wider market, which suggest that revenues (in aggregate) are expected to decline 0.6% next year. So it's pretty clear that, in addition to having declining revenues, Sembcorp Marine revenues are expected to decline at a faster rate than the wider market.
The Bottom Line
The most important thing to take away is that analysts reduced their loss per share estimates for next year, perhaps highlighting increased optimism around Sembcorp Marine's prospects. Sadly they also cut their revenue estimates, although at least the company is expected to perform a bit better than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by the latest results, leading to a lower estimate of Sembcorp Marine's future valuation.
With that in mind, we wouldn't be too quick to come to a conclusion on Sembcorp Marine. Long-term earnings power is much more important than next year's profits. We have forecasts for Sembcorp Marine going out to 2022, and you can see them free on our platform here.
It might also be worth considering whether Sembcorp Marine's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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