Today is shaping up negative for Cimarex Energy Co. (NYSE:XEC) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the latest downgrade, the current consensus, from the eleven analysts covering Cimarex Energy, is for revenues of US$1.7b in 2020, which would reflect a sizeable 26% reduction in Cimarex Energy's sales over the past 12 months. Losses are predicted to fall substantially, shrinking 72% to US$0.38. Previously, the analysts had been modelling revenues of US$2.0b and earnings per share (EPS) of US$1.92 in 2020. There looks to have been a major change in sentiment regarding Cimarex Energy's prospects, with a substantial drop in revenues and the analysts now forecasting a loss instead of a profit.
The consensus price target fell 20% to US$34.12, implicitly signalling that lower earnings per share are a leading indicator for Cimarex Energy's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Cimarex Energy analyst has a price target of US$84.00 per share, while the most pessimistic values it at US$12.00. 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. 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.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Cimarex Energy's past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with the forecast 26% revenue decline a notable change from historical growth of 7.2% 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 0.3% annually for the foreseeable future. The forecasts do look bearish for Cimarex Energy, since they're expecting it to shrink faster than the industry.
The Bottom Line
The most important thing to take away is that analysts are expecting Cimarex Energy to become unprofitable this year. Unfortunately they also downgraded their revenue estimates, and our aggregation of analyst estimates suggests that Cimarex Energy revenue is expected to perform worse than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Cimarex Energy.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Cimarex Energy analysts - going out to 2023, 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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