Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) shareholders will have a reason to smile today, with the covering analyst making substantial upgrades to this year's statutory forecasts. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with the analyst modelling a real improvement in business performance.
Following this upgrade, Schnitzer Steel Industries' solitary analyst are forecasting 2020 revenues to be US$1.8b, approximately in line with the last 12 months. Statutory earnings per share are supposed to tumble 69% to US$0.04 in the same period. Yet prior to the latest estimates, the analyst had been forecasting revenues of US$1.6b and losses of US$0.12 per share in 2020. It looks like there's been a definite improvement in business conditions, with a revenue upgrade supposed to lead to profitability sooner than previously forecast.
Although the analyst has upgraded their earnings estimates, there was no change to the consensus price target of US$15.50, suggesting that the forecast performance does not have a long term impact on the company's valuation. 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 Schnitzer Steel Industries at US$16.00 per share, while the most bearish prices it at US$15.00. This is a very narrow spread of estimates, implying either that Schnitzer Steel Industries is an easy company to value, or - more likely - the analyst is relying heavily on some key assumptions.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Schnitzer Steel Industries' past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 0.4%, a significant reduction from annual growth of 6.0% 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 6.1% annually for the foreseeable future. It's pretty clear that Schnitzer Steel Industries' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that there is now an expectation for Schnitzer Steel Industries to become profitable this year, compared to previous expectations of a loss. Pleasantly, the analyst also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow slower than the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So Schnitzer Steel Industries could be a good candidate for more research.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have analyst estimates for Schnitzer Steel Industries going out as far as 2021, and you can see them free on our platform here.
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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