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One thing we could say about the analysts on Air Canada (TSE:AC) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
Following the downgrade, the current consensus from Air Canada's 17 analysts is for revenues of CA$6.8b in 2021 which - if met - would reflect a decent 17% increase on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 67% to CA$5.45. However, before this estimates update, the consensus had been expecting revenues of CA$7.1b and CA$6.17 per share in losses. While the revenue estimates fell, sentiment seems to have improved, with the analysts making a favorable reduction in losses per share in particular.
There was no major change to the CA$28.62 average analyst price target, suggesting that the adjustments to revenue and earnings are not expected to have a long-term impact on the business. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Air Canada at CA$35.00 per share, while the most bearish prices it at CA$24.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Air Canada's past performance and to peers in the same industry. For example, we noticed that Air Canada's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 23% growth to the end of 2021 on an annualised basis. That is well above its historical decline of 1.4% a year over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 24% annually. So it looks like Air Canada is expected to grow at about the same rate as the wider industry.
The Bottom Line
There was also a drop in their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider market. Given the stark change in sentiment, we'd understand if investors became more cautious on Air Canada after today.
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 Air Canada's business, like dilutive stock issuance over the past year. Learn more, and discover the 1 other risk we've identified, for free on our platform here.
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.
This article by Simply Wall St is general in nature. 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.
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