These Analysts Just Made An Incredible Downgrade To Their Scorpio Bulkers Inc. (NYSE:SALT) EPS Forecasts
The analysts covering Scorpio Bulkers Inc. (NYSE:SALT) 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) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the latest downgrade, the current consensus, from the six analysts covering Scorpio Bulkers, is for revenues of US$173m in 2020, which would reflect a concerning 23% reduction in Scorpio Bulkers' sales over the past 12 months. After this downgrade, the company is anticipated to report a loss of US$8.32 in 2020, a sharp decline from a profit over the last year. Yet before this consensus update, the analysts had been forecasting revenues of US$228m and losses of US$4.69 per share in 2020. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
See our latest analysis for Scorpio Bulkers
The consensus price target fell 12% to US$45.00, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. 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. The most optimistic Scorpio Bulkers analyst has a price target of US$85.00 per share, while the most pessimistic values it at US$20.00. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
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. We would highlight that sales are expected to reverse, with the forecast 23% revenue decline a notable change from historical growth of 34% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 1.8% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Scorpio Bulkers is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
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 Scorpio Bulkers' business, like dilutive stock issuance over the past year. For more information, you can click here to discover this and the 4 other risks we've identified.
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