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One thing we could say about the analysts on DiamondRock Hospitality Company (NYSE:DRH) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.
After the downgrade, the consensus from DiamondRock Hospitality's nine analysts is for revenues of US$411m in 2020, which would reflect a disturbing 55% decline in sales compared to the last year of performance. Before the latest update, the analysts were foreseeing US$453m of revenue in 2020. The forecasts seem less optimistic overall, with the slight decrease in revenue estimates in the latest consensus update.
We'd point out that there was no major changes to their price target of US$5.91, suggesting the latest estimates were not enough to shift their view on the value of the business. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic DiamondRock Hospitality analyst has a price target of US$8.00 per share, while the most pessimistic values it at US$4.00. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. One more thing stood out to us about these estimates, and it's the idea that DiamondRock Hospitality'sdecline is expected to accelerate, with revenues forecast to fall 55% next year, topping off a historical decline of 0.6% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 5.3% per year. So while a broad number of companies are forecast to grow, unfortunately DiamondRock Hospitality is expected to see its sales affected worse than other companies in the industry.
The Bottom Line
The most important thing to take away is that analysts cut their revenue estimates for this year. They're also anticipating slower revenue growth than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on DiamondRock Hospitality after today.
Hungry for more information? At least one of DiamondRock Hospitality's nine analysts has provided estimates out to 2023, which can be seen for 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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