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Centuria Office REIT (ASX:COF) Analysts Just Trimmed Their Revenue Forecasts By 18%

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·4 min read
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Today is shaping up negative for Centuria Office REIT (ASX:COF) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative. The stock price has risen 6.3% to AU$2.01 over the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

Following the downgrade, the consensus from four analysts covering Centuria Office REIT is for revenues of AU$122m in 2020, implying a small 4.7% decline in sales compared to the last 12 months. Statutory earnings per share are presumed to bounce 26% to AU$0.18. Previously, the analysts had been modelling revenues of AU$149m and earnings per share (EPS) of AU$0.19 in 2020. Indeed, we can see that analyst sentiment has declined measurably after the new consensus came out, with a measurable cut to revenue estimates and a minor downgrade to EPS estimates to boot.

See our latest analysis for Centuria Office REIT

ASX:COF Past and Future Earnings May 28th 2020
ASX:COF Past and Future Earnings May 28th 2020

The consensus price target fell 5.8% to AU$2.43, with the weaker earnings outlook clearly leading analyst valuation estimates. 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. There are some variant perceptions on Centuria Office REIT, with the most bullish analyst valuing it at AU$3.06 and the most bearish at AU$2.12 per share. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.

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 4.7% revenue decline a notable change from historical growth of 37% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue decline 1.4% annually for the foreseeable future. The forecasts do look bearish for Centuria Office REIT, since they're expecting it to shrink faster than the industry.

The Bottom Line

The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. 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. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Given the stark change in sentiment, we'd understand if investors became more cautious on Centuria Office REIT after today.

After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Centuria Office REIT's business, like dilutive stock issuance over the past year. Learn more, and discover the 3 other concerns we've identified, for free on our platform here.

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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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.