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The latest analyst coverage could presage a bad day for Old Second Bancorp, Inc. (NASDAQ:OSBC), 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.
Following the downgrade, the consensus from four analysts covering Old Second Bancorp is for revenues of US$95m in 2021, implying a substantial 31% decline in sales compared to the last 12 months. Statutory earnings per share are supposed to fall 18% to US$1.10 in the same period. Previously, the analysts had been modelling revenues of US$106m and earnings per share (EPS) of US$1.29 in 2021. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a considerable drop in earnings per share numbers as well.
Analysts made no major changes to their price target of US$14.50, suggesting the downgrades are not expected to have a long-term impact on Old Second Bancorp's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Old Second Bancorp, with the most bullish analyst valuing it at US$15.00 and the most bearish at US$14.00 per share. This is a very narrow spread of estimates, implying either that Old Second Bancorp is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 53% by the end of 2021. This indicates a significant reduction from annual growth of 8.0% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 3.8% per year. It's pretty clear that Old Second Bancorp's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Old Second Bancorp. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Old Second Bancorp after the downgrade.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Old Second Bancorp analysts - going out to 2023, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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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