The Consensus EPS Estimates For Houghton Mifflin Harcourt Company (NASDAQ:HMHC) Just Fell Dramatically
The latest analyst coverage could presage a bad day for Houghton Mifflin Harcourt Company (NASDAQ:HMHC), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon. Investors however, have been notably more optimistic about Houghton Mifflin Harcourt recently, with the stock price up a notable 15% to US$2.75 in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.
Following the downgrade, the latest consensus from Houghton Mifflin Harcourt's three analysts is for revenues of US$1.1b in 2021, which would reflect an okay 4.7% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 82% to US$0.74. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$1.3b and losses of US$0.66 per share in 2021. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to next year's revenue estimates, while at the same time increasing their loss per share forecasts.
View our latest analysis for Houghton Mifflin Harcourt
There was no major change to the consensus price target of US$3.35, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Houghton Mifflin Harcourt analyst has a price target of US$5.00 per share, while the most pessimistic values it at US$2.50. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
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. One thing stands out from these estimates, which is that Houghton Mifflin Harcourt is forecast to grow faster in the future than it has in the past, with revenues expected to grow 4.7%. If achieved, this would be a much better result than the 2.4% annual decline over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 24% next year. Although Houghton Mifflin Harcourt's revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at Houghton Mifflin Harcourt. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Houghton Mifflin Harcourt's revenues are expected to grow slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected next year, we wouldn't be surprised if investors were a bit wary of Houghton Mifflin Harcourt.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Houghton Mifflin Harcourt going out to 2022, and you can see them free on our platform here.
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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.
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