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One thing we could say about the analysts on Scorpio Tankers Inc. (NYSE:STNG) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
Following the downgrade, the most recent consensus for Scorpio Tankers from its eight analysts is for revenues of US$1.1b in 2020 which, if met, would be a huge 40% increase on its sales over the past 12 months. Prior to the latest estimates, the analysts were forecasting revenues of US$1.2b in 2020. It looks like forecasts have become a fair bit less optimistic on Scorpio Tankers, given the substantial drop in revenue estimates.
The consensus price target fell 7.1% to US$24.93, with the analysts clearly less optimistic about Scorpio Tankers' valuation following this update. 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 Scorpio Tankers at US$45.00 per share, while the most bearish prices it at US$13.20. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. The analysts are definitely expecting Scorpio Tankers' growth to accelerate, with the forecast 40% growth ranking favourably alongside historical growth of 1.9% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 8.6% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Scorpio Tankers is expected to grow much faster than its industry.
The Bottom Line
The clear low-light was that analysts slashing their revenue forecasts for Scorpio Tankers this year. They're also forecasting more rapid revenue growth than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Scorpio Tankers' future valuation. 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 Scorpio Tankers after today.
That said, the analysts might have good reason to be negative on Scorpio Tankers, given dilutive stock issuance over the past year. For more information, you can click here to discover this and the 3 other risks we've identified.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies 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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