The analysts covering Globus Medical, Inc. (NYSE:GMED) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon. Shares are up 4.7% to US$47.80 in the past week. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.
Following the downgrade, the consensus from 13 analysts covering Globus Medical is for revenues of US$693m in 2020, implying an uneasy 13% decline in sales compared to the last 12 months. Statutory earnings per share are supposed to tumble 38% to US$0.94 in the same period. Before this latest update, the analysts had been forecasting revenues of US$810m and earnings per share (EPS) of US$1.61 in 2020. Indeed, we can see that the analysts are a lot more bearish about Globus Medical's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.
Analysts made no major changes to their price target of US$56.38, suggesting the downgrades are not expected to have a long-term impact on Globus Medical'svaluation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Globus Medical analyst has a price target of US$67.00 per share, while the most pessimistic values it at US$50.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 13% revenue decline a notable change from historical growth of 10.0% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 9.3% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Globus Medical is expected to lag the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Globus Medical. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Globus Medical after the downgrade.
In light of the downgrade, our automated discounted cash flow valuation tool suggests that Globus Medical could now be moderately overvalued. Find out why, and see how we estimate the valuation 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.