Investors in ScanSource, Inc. (NASDAQ:SCSC) had a good week, as its shares rose 3.3% to close at US$34.85 following the release of its quarterly results. Earnings per share of US$0.45 unfortunately missed expectations by 19%, although it was encouraging to see revenues of US$1.0b exceed expectations by 5.1%. 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. So we gathered the latest post-earnings forecasts to see what analysts are forecasting for next year.
Following the recent earnings report, the consensus fromthree analysts covering ScanSource expects revenues of US$3.61b in 2020, implying a small 7.6% decline in sales compared to the last 12 months. Earnings per share are forecast to be US$2.11, approximately in line with the last 12 months. Before this earnings report, analysts had been forecasting revenues of US$3.81b and earnings per share (EPS) of US$2.31 in 2020. Analysts are less bullish than they were before these results, given the reduced revenue forecasts and the minor downgrade to earnings per share expectations.
It'll come as no surprise then, to learn that analysts have cut their price target 16% to US$41.00. 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. The most optimistic ScanSource analyst has a price target of US$46.00 per share, while the most pessimistic values it at US$36.00. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that analysts have a clear view on its prospects.
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. We would highlight that sales are expected to reverse, with the forecast 7.6% revenue decline a notable change from historical growth of 5.1% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 5.0% annually for the foreseeable future. It's pretty clear that ScanSource's revenues are expected to perform substantially worse than the wider market.
The Bottom Line
The biggest highlight of the new consensus is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for ScanSource. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by the latest results, leading to a lower estimate of ScanSource's future valuation.
With that in mind, we wouldn't be too quick to come to a conclusion on ScanSource. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for ScanSource going out to 2021, and you can see them free on our platform here..
You can also view our analysis of ScanSource's balance sheet, and whether we think ScanSource is carrying too much debt, for free on our platform here.
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