Shareholders of CoStar Group, Inc. (NASDAQ:CSGP) will be pleased this week, given that the stock price is up 18% to US$829 following its latest quarterly results. Revenues were US$397m, approximately in line with whatthe analysts expected, although statutory earnings per share (EPS) crushed expectations, coming in at US$1.60, an impressive 29% ahead of estimates. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on CoStar Group after the latest results.
Taking into account the latest results, the current consensus from CoStar Group's 13 analysts is for revenues of US$1.64b in 2020, which would reflect a modest 7.9% increase on its sales over the past 12 months. Statutory earnings per share are forecast to plummet 22% to US$6.36 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$1.59b and earnings per share (EPS) of US$6.62 in 2020. So it's pretty clear consensus is mixed on CoStar Group after the latest results; whilethe analysts lifted revenue numbers, they also administered a minor downgrade to per-share earnings expectations.
Curiously, the consensus price target rose 10% to US$810. We can only conclude that the forecast revenue growth is expected to offset the impact of the expected fall in earnings. 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. Currently, the most bullish analyst values CoStar Group at US$915 per share, while the most bearish prices it at US$612. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that CoStar Group's revenue growth will slow down substantially, with revenues next year expected to grow 7.9%, compared to a historical growth rate of 17% over the past five years. Compare this to the 106 other companies in this industry with analyst coverage, which are forecast to grow their revenue at 6.4% per year. Factoring in the forecast slowdown in growth, it looks like CoStar Group 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. There was also an upgrade to revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple CoStar Group analysts - going out to 2023, and you can see them free on our platform here.
You still need to take note of risks, for example - CoStar Group has 3 warning signs we think you should be aware of.
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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