Alumina Limited (ASX:AWC) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's statutory forecasts. The revenue forecast for this year has experienced a facelift, with analysts now much more optimistic on its sales pipeline.
Following the latest upgrade, the ten analysts covering Alumina provided consensus estimates of US$1.5m revenue in 2020, which would reflect a sizeable 42% decline on its sales over the past 12 months. Statutory earnings per share are anticipated to decrease 3.0% to US$0.072 in the same period. Before this latest update, the analysts had been forecasting revenues of US$1.2m and earnings per share (EPS) of US$0.071 in 2020. There's clearly been a surge in bullishness around the company's sales pipeline, even if there's no real change in earnings per share forecasts.
Even though revenue forecasts increased, there was no change to the consensus price target of AU$2.00, suggesting the analysts are focused on earnings as the driver of value creation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Alumina, with the most bullish analyst valuing it at AU$2.60 and the most bearish at AU$1.30 per share. 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.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 42% revenue decline a notable change from historical growth of 59% 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 1.2% annually for the foreseeable future. It's pretty clear that Alumina's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that there's been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. Pleasantly, analysts also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow slower than the wider market. Seeing the dramatic upgrade to this year's forecasts, it might be time to take another look at Alumina.
Analysts are clearly in love with Alumina at the moment, but before diving in - you should be aware that we've identified some warning flags with the business, such as its declining profit margins. For more information, you can click through to our platform to learn more about this and the 3 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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