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Newmark Group, Inc. (NASDAQ:NMRK) missed earnings with its latest quarterly results, disappointing overly-optimistic forecasters. Results showed a clear earnings miss, with US$484m revenue coming in 2.0% lower than what the analystsexpected. Statutory earnings per share (EPS) of US$0.03 missed the mark badly, arriving some 70% below what was expected. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
After the latest results, the consensus from Newmark Group's five analysts is for revenues of US$1.94b in 2020, which would reflect an uncomfortable 14% decline in sales compared to the last year of performance. Statutory earnings per share are expected to crater 40% to US$0.33 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$1.93b and earnings per share (EPS) of US$0.47 in 2020. So there's definitely been a decline in sentiment after the latest results, noting the large cut to new EPS forecasts.
The consensus price target held steady at US$7.97, with the analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Newmark Group at US$14.00 per share, while the most bearish prices it at US$4.00. With such a wide range in price targets, analysts are almost certainly betting on widely divergent outcomes in the underlying business. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 14%, a significant reduction from annual growth of 17% over the last three years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 6.1% annually for the foreseeable future. It's pretty clear that Newmark Group's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Newmark Group. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
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 forecasts for Newmark Group going out to 2024, and you can see them free on our platform here.
And what about risks? Every company has them, and we've spotted 4 warning signs for Newmark Group (of which 1 is concerning!) you should know about.
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