Investors in Evolution Petroleum Corporation (NYSEMKT:EPM) had a good week, as its shares rose 5.8% to close at US$2.93 following the release of its third-quarter results. It looks to have been a decent result overall - while revenue fell marginally short of analyst estimates at US$7.7m, statutory earnings beat expectations by a notable 154%, coming in at US$0.11 per share. 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. 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 three analysts covering Evolution Petroleum, is for revenues of US$24.6m in 2021, which would reflect a concerning 33% reduction in Evolution Petroleum's sales over the past 12 months. Statutory earnings per share are forecast to crater 87% to US$0.047 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$29.2m and earnings per share (EPS) of US$0.14 in 2021. It looks like sentiment has declined substantially in the aftermath of these results, with a real cut to revenue estimates and a large cut to earnings per share numbers as well.
It'll come as no surprise then, to learn thatthe analysts have cut their price target 18% to US$4.50. 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 Evolution Petroleum at US$5.50 per share, while the most bearish prices it at US$3.50. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would highlight that sales are expected to reverse, with the forecast 33% revenue decline a notable change from historical growth of 11% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 9.2% annually for the foreseeable future. It's pretty clear that Evolution Petroleum'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 Evolution Petroleum. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Evolution Petroleum's future valuation.
With that in mind, we wouldn't be too quick to come to a conclusion on Evolution Petroleum. Long-term earnings power is much more important than next year's profits. We have forecasts for Evolution Petroleum going out to 2021, 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 Evolution Petroleum (of which 1 is significant!) you should know about.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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