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These Analysts Just Made A Massive Downgrade To Their Galp Energia, SGPS, S.A. (ELI:GALP) EPS Forecasts

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Simply Wall St
·3 min read
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One thing we could say about the analysts on Galp Energia, SGPS, S.A. (ELI:GALP) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.

Following the latest downgrade, the current consensus, from the 18 analysts covering Galp Energia SGPS, is for revenues of €13b in 2020, which would reflect a concerning 24% reduction in Galp Energia SGPS' sales over the past 12 months. Statutory earnings per share are supposed to crater 29% to €0.33 in the same period. Before this latest update, the analysts had been forecasting revenues of €15b and earnings per share (EPS) of €0.56 in 2020. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a pretty serious decline to earnings per share numbers as well.

See our latest analysis for Galp Energia SGPS

ENXTLS:GALP Past and Future Earnings April 10th 2020
ENXTLS:GALP Past and Future Earnings April 10th 2020

Analysts made no major changes to their price target of €13.45, suggesting the downgrades are not expected to have a long-term impact on Galp Energia SGPS'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 Galp Energia SGPS analyst has a price target of €16.50 per share, while the most pessimistic values it at €9.00. 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 Galp Energia SGPS shareholders.

Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 24% revenue decline a notable change from historical growth of 0.6% 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 - Galp Energia SGPS is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Galp Energia SGPS after the downgrade.

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 Galp Energia SGPS' business, like the risk of cutting its dividend. For more information, you can click here to discover this and the 3 other risks we've identified.

Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.