Nine Energy Service, Inc. (NYSE:NINE) missed earnings with its latest first-quarter results, disappointing overly-optimistic forecasters. It was a pretty negative result overall, with revenues of US$147m missing analyst predictions by 5.6%. Worse, the business reported a statutory loss of US$10.22 per share, much larger than the analysts had forecast prior to the result. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the current consensus, from the five analysts covering Nine Energy Service, is for revenues of US$334.4m in 2020, which would reflect a substantial 55% reduction in Nine Energy Service's sales over the past 12 months. Losses are predicted to fall substantially, shrinking 43% to US$10.41. Before this earnings announcement, the analysts had been modelling revenues of US$404.4m and losses of US$2.61 per share in 2020. So there's been quite a change-up of views after the recent consensus updates, withthe analysts making a serious cut to their revenue outlook while also expecting losses per share to increase.
The analysts lifted their price target 22% to US$1.03, implicitly signalling that lower earnings per share are not expected to have a longer-term impact on the stock's value. 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. There are some variant perceptions on Nine Energy Service, with the most bullish analyst valuing it at US$1.85 and the most bearish at US$0.50 per share. We would probably assign less value to the analyst forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. 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.
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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 55%, a significant reduction from annual growth of 27% over the last three years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 0.05% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Nine Energy Service is expected to lag the wider industry.
The Bottom Line
The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at Nine Energy Service. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
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 Nine Energy Service going out to 2022, and you can see them free on our platform here.
Don't forget that there may still be risks. For instance, we've identified 4 warning signs for Nine Energy Service that you should be aware of.
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