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PennyMac Financial Services, Inc. (NYSE:PFSI) shareholders will have a reason to smile today, with the analysts making substantial upgrades to next year's forecasts. The analysts greatly increased their revenue estimates, suggesting a stark improvement in business fundamentals.
After the upgrade, the consensus from PennyMac Financial Services' four analysts is for revenues of US$2.9b in 2021, which would reflect a stressful 29% decline in sales compared to the last year of performance. Statutory earnings per share are supposed to nosedive 22% to US$13.66 in the same period. Previously, the analysts had been modelling revenues of US$2.6b and earnings per share (EPS) of US$11.56 in 2021. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.
With these upgrades, we're not surprised to see that the analysts have lifted their price target 6.7% to US$75.29 per share. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values PennyMac Financial Services at US$90.00 per share, while the most bearish prices it at US$65.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 29% revenue decline a notable change from historical growth of 30% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue decline 7.0% annually for the foreseeable future. So it's pretty clear that PennyMac Financial Services' revenues are expected to shrink faster than the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for next year, expecting improving business conditions. They also upgraded their revenue estimates, with sales apparently performing well even though revenue growth expected to decline against the wider market next year. With a serious upgrade to expectations and a rising price target, it might be time to take another look at PennyMac Financial Services.
Analysts are clearly in love with PennyMac Financial Services at the moment, but before diving in - you should be aware that we've identified some warning flags with the business, such as recent substantial insider selling. You can learn more, and discover the 2 other concerns we've identified, for free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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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