Shareholders in The Children's Place, Inc. (NASDAQ:PLCE) had a terrible week, as shares crashed 23% to US$54.11 in the week since its latest third-quarter results. Revenues of US$525m were in line with forecasts, although statutory earnings per share (EPS) came in below expectations at US$2.77, missing estimates by 8.4%. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether analysts have changed their mind on Children's Place after the latest results.
Taking into account the latest results, Children's Place's six analysts currently expect revenues in 2021 to be US$1.92b, approximately in line with the last 12 months. Statutory earnings per share are expected to leap 56% to US$6.02. In the lead-up to this report, analysts had been modelling revenues of US$2.00b and earnings per share (EPS) of US$7.46 in 2021. Analysts seem less optimistic after the recent results, reducing their sales forecasts and making a real cut to earnings per share forecasts.
The consensus price target fell 34% to US$66.30, with the weaker earnings outlook clearly leading analyst valuation estimates. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Children's Place at US$105 per share, while the most bearish prices it at US$45.00. 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.
Further, we can compare these estimates to past performance, and see how Children's Place forecasts compare to the wider market's forecast performance. We would highlight that Children's Place's revenue growth is expected to slow, with forecast 1.7% increase next year well below the historical 2.5%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 6.0% next year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect Children's Place to grow slower than the wider market.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Unfortunately, analysts also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider market. Even so, earnings per share are more important to the intrinsic value of the business. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have forecasts for Children's Place going out to 2022, and you can see them free on our platform here.
It might also be worth considering whether Children's Place's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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