Market forces rained on the parade of Caesarstone Ltd. (NASDAQ:CSTE) shareholders today, when the covering analyst downgraded their forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analyst factored in the latest outlook for the business, concluding that they were too optimistic previously.
After the downgrade, the consensus from Caesarstone's lone analyst is for revenues of US$442m in 2020, which would reflect a definite 19% decline in sales compared to the last year of performance. After this downgrade, the company is anticipated to report a loss of US$0.12 in 2020, a sharp decline from a profit over the last year. Prior to this update, the analyst had been forecasting revenues of US$545m and earnings per share (EPS) of US$0.60 in 2020. So we can see that the consensus has become notably more bearish on Caesarstone's outlook with these numbers, making a measurable cut to this year's revenue estimates. Furthermore, they expect the business to be loss-making this year, compared to their previous forecasts of a profit.
The consensus price target fell 8.3% to US$11.00, with the analyst clearly concerned about the company following the weaker revenue and earnings outlook.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 19% revenue decline a notable change from historical growth of 4.3% 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 2.5% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Caesarstone is expected to lag the wider industry.
The Bottom Line
The biggest low-light for us was that the forecasts for Caesarstone dropped from profits to a loss this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Caesarstone, including its declining profit margins. For more information, you can click here to discover this and the 3 other concerns we've identified.
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.
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