Market forces rained on the parade of ConocoPhillips (NYSE:COP) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as 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 17 analysts covering ConocoPhillips, is for revenues of US$23b in 2020, which would reflect a disturbing 32% reduction in ConocoPhillips' sales over the past 12 months. After this downgrade, the company is anticipated to report a loss of US$0.75 in 2020, a sharp decline from a profit over the last year. Prior to this update, the analysts had been forecasting revenues of US$26b and earnings per share (EPS) of US$0.88 in 2020. So we can see that the consensus has become notably more bearish on ConocoPhillips' outlook with these numbers, making a measurable cut to this year's revenue estimates. Furthermore, they expect the business to be loss-making this year, compared to their previous forecasts of a profit.
The consensus price target fell 12% to US$47.42, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values ConocoPhillips at US$85.00 per share, while the most bearish prices it at US$22.00. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. 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.
Of course, another way to look at these forecasts is to place them into context against the industry itself. Compare this against analyst estimates for companies in the wider industry, which suggest that revenues (in aggregate) are expected to decline 0.3% next year. So it's pretty clear that ConocoPhillips sales are expected to decline at a faster rate than the wider industry.
The Bottom Line
The biggest low-light for us was that the forecasts for ConocoPhillips dropped from profits to a loss this year. Unfortunately they also cut their revenue estimates for this year, and they expect sales to lag the wider market. That said, earnings per share are more important for creating value for shareholders. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of ConocoPhillips.
As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with ConocoPhillips' financials, such as a weak balance sheet. Learn more, and discover the 4 other risks we've identified, for free on our platform here.
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