Last week, you might have seen that Columbia Banking System, Inc. (NASDAQ:COLB) released its first-quarter result to the market. The early response was not positive, with shares down 2.6% to US$24.31 in the past week. Statutory earnings per share fell badly short of expectations, coming in at US$0.20, some 59% below analyst forecasts, although revenues were okay, approximately in line with analyst estimates at US$144m. Following the result, the 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. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Taking into account the latest results, the most recent consensus for Columbia Banking System from five analysts is for revenues of US$560.6m in 2020 which, if met, would be a reasonable 2.9% increase on its sales over the past 12 months. Statutory earnings per share are expected to dive 25% to US$1.70 in the same period. Before this earnings report, the analysts had been forecasting revenues of US$579.1m and earnings per share (EPS) of US$2.06 in 2020. The analysts seem less optimistic after the recent results, reducing their sales forecasts and making a real cut to earnings per share numbers.
The consensus price target fell 7.9% to US$32.00, with the weaker earnings outlook clearly leading 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. Currently, the most bullish analyst values Columbia Banking System at US$37.00 per share, while the most bearish prices it at US$29.00. This is a very narrow spread of estimates, implying either that Columbia Banking System is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Columbia Banking System's past performance and to peers in the same industry. We would highlight that Columbia Banking System's revenue growth is expected to slow, with forecast 2.9% increase next year well below the historical 9.7%p.a. growth over the last five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 2.8% next year. Factoring in the forecast slowdown in growth, it looks like Columbia Banking System is forecast to grow at about the same rate as the wider industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Sadly, they also downgraded their sales forecasts, but the business is still expected to grow at roughly the same rate as the industry itself. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Columbia Banking System's future valuation.
With that in mind, we wouldn't be too quick to come to a conclusion on Columbia Banking System. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Columbia Banking System analysts - going out to 2021, and you can see them free on our platform here.
Before you take the next step you should know about the 3 warning signs for Columbia Banking System (1 is a bit concerning!) that we have uncovered.
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