Market forces rained on the parade of Calfrac Well Services Ltd. (TSE:CFW) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon. Investors however, have been notably more optimistic about Calfrac Well Services recently, with the stock price up a worthy 11% to CA$0.20 in the past week. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.
After the downgrade, the consensus from Calfrac Well Services' eight analysts is for revenues of CA$761m in 2020, which would reflect a sizeable 48% decline in sales compared to the last year of performance. Per-share losses are expected to explode, reaching CA$2.41 per share. However, before this estimates update, the consensus had been expecting revenues of CA$873m and CA$1.28 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target fell 11% to CA$0.26, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. These estimates imply that sales are expected to slow, with a forecast revenue decline of 48%, a significant reduction from annual growth of 3.2% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue decline 2.2% annually for the foreseeable future. The forecasts do look bearish for Calfrac Well Services, since they're expecting it to shrink faster than the industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Calfrac Well Services. Unfortunately they also downgraded their revenue estimates, and our aggregation of analyst estimates suggests that Calfrac Well Services revenue is expected to perform worse 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 Calfrac Well Services' business, like a short cash runway. For more information, you can click here to discover this and the 3 other risks we've identified.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies 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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