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The latest analyst coverage could presage a bad day for Gogo Inc. (NASDAQ:GOGO), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. Bidders are definitely seeing a different story, with the stock price of US$1.83 reflecting a 31% rise in the past week. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.
Following the latest downgrade, the six analysts covering Gogo provided consensus estimates of US$547m revenue in 2020, which would reflect a concerning 33% decline on its sales over the past 12 months. Losses are expected to increase substantially, hitting US$3.14 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$622m and losses of US$2.24 per share in 2020. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 12% to US$3.75, implicitly signalling that lower earnings per share are a leading indicator for Gogo's valuation. 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 Gogo, with the most bullish analyst valuing it at US$7.00 and the most bearish at US$1.00 per share. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 33%, a significant reduction from annual growth of 14% 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 4.6% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Gogo is expected to lag the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Gogo. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Gogo's revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Gogo.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Gogo going out to 2023, and you can see them 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.
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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