Some Analysts Just Cut Their Fairfax Financial Holdings Limited (TSE:FFH) Estimates
One thing we could say about the analysts on Fairfax Financial Holdings Limited (TSE:FFH) - 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 latest consensus from Fairfax Financial Holdings' four analysts is for revenues of US$32b in 2023, which would reflect a solid 14% improvement in sales compared to the last 12 months. Per-share earnings are expected to shoot up 73% to US$121. Before this latest update, the analysts had been forecasting revenues of US$32b and earnings per share (EPS) of US$119 in 2023. So it's pretty clear that, although the analysts have updated their estimates, there's been no major change in expectations for the business.
View our latest analysis for Fairfax Financial Holdings
There were no changes to revenue or earnings estimates or the price target of US$872, suggesting that the company has been performing in line with expectations. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Fairfax Financial Holdings at US$1,346 per share, while the most bearish prices it at US$790. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. The analysts are definitely expecting Fairfax Financial Holdings' growth to accelerate, with the forecast 18% annualised growth to the end of 2023 ranking favourably alongside historical growth of 8.2% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 2.4% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Fairfax Financial Holdings is expected to grow much faster than its 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. On the plus side, there were no major changes to revenue estimates; although analyst forecasts do imply revenues will come in ahead of the wider market. Given the stark change in sentiment, we'd understand if investors became more cautious on Fairfax Financial Holdings 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 Fairfax Financial Holdings' business, like concerns around earnings quality. Learn more, and discover the 3 other concerns 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.
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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.
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