Today is shaping up negative for Select Energy Services, Inc. (NYSE:WTTR) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. 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. The stock price has risen 9.4% to US$2.92 over the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.
Following the latest downgrade, the current consensus, from the five analysts covering Select Energy Services, is for revenues of US$934m in 2020, which would reflect a substantial 28% reduction in Select Energy Services' sales over the past 12 months. After this downgrade, the company is anticipated to report a loss of US$0.46 in 2020, a sharp decline from a profit over the last year. However, before this estimates update, the consensus had been expecting revenues of US$1.1b and US$0.15 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
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. We would highlight that sales are expected to reverse, with the forecast 28% revenue decline a notable change from historical growth of 45% over the last three years. Yet aggregate analyst estimates for other companies in the industry suggest that industry revenues are forecast to decline 1.6% next year. So it's pretty clear that Select Energy Services' revenues are expected to shrink faster than the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for 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. After a cut like that, investors could be forgiven for thinking analysts are a lot more bearish on Select Energy Services, and a few readers might choose to steer clear of the stock.
There might be good reason for analyst bearishness towards Select Energy Services, like dilutive stock issuance over the past year. For more information, you can click here to discover this and the 4 other concerns 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.
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