Today is shaping up negative for Hess Corporation (NYSE:HES) 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 analysts have soured majorly on the business.
Following the latest downgrade, the 18 analysts covering Hess provided consensus estimates of US$5.2b revenue in 2020, which would reflect a not inconsiderable 15% decline on its sales over the past 12 months. Losses are expected to increase slightly, to US$9.86 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$5.9b and losses of US$2.72 per share in 2020. 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.
Analysts lifted their price target 5.1% to US$51.19, implicitly signalling that lower earnings per share are not expected to have a longer-term impact on the stock's value. 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. The most optimistic Hess analyst has a price target of US$78.00 per share, while the most pessimistic values it at US$37.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. Over the past five years, revenues have declined around 3.8% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for a 15% decline in revenue next year. Compare this against analyst estimates for companies in the wider industry, which suggest that revenues (in aggregate) are expected to grow 8.9% next year. So while a broad number of companies are forecast to decline, unfortunately Hess is expected to see its sales affected worse than other companies in 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 Hess. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Hess' revenues are expected to grow slower than the wider market. The rising price target is a puzzle, but still - with a serious cut to this year's outlook, we wouldn't be surprised if investors were a bit wary of Hess.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Hess, including recent substantial insider selling. Learn more, and discover the 2 other risks we've identified, for 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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