Today is shaping up negative for AAR Corp. (NYSE:AIR) shareholders, with the analysts delivering a substantial negative revision to next year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon. Bidders are definitely seeing a different story, with the stock price of US$18.09 reflecting a 19% rise in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.
After the downgrade, the consensus from AAR's five analysts is for revenues of US$1.8b in 2021, which would reflect an uncomfortable 19% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to nosedive 43% to US$1.08 in the same period. Previously, the analysts had been modelling revenues of US$2.1b and earnings per share (EPS) of US$1.56 in 2021. 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.
The consensus price target fell 34% to US$27.67, with the weaker earnings outlook clearly leading analyst valuation estimates. 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. Currently, the most bullish analyst values AAR at US$56.00 per share, while the most bearish prices it at US$11.00. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 19% revenue decline a notable change from historical growth of 6.9% 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 4.9% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - AAR 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. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that AAR's revenues are expected to grow 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.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for AAR going out to 2022, and you can see them 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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