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Healthcare Services Group, Inc. (NASDAQ:HCSG) Just Reported Earnings, And Analysts Cut Their Target Price

Simply Wall St
·4 min read

Shareholders of Healthcare Services Group, Inc. (NASDAQ:HCSG) will be pleased this week, given that the stock price is up 13% to US$24.74 following its latest quarterly results. The result was positive overall - although revenues of US$449m were in line with what the analysts predicted, Healthcare Services Group surprised by delivering a statutory profit of US$0.27 per share, modestly greater than expected. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

Check out our latest analysis for Healthcare Services Group

NasdaqGS:HCSG Past and Future Earnings April 28th 2020
NasdaqGS:HCSG Past and Future Earnings April 28th 2020

Following last week's earnings report, Healthcare Services Group's nine analysts are forecasting 2020 revenues to be US$1.81b, approximately in line with the last 12 months. Per-share earnings are expected to increase 7.2% to US$1.09. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$1.82b and earnings per share (EPS) of US$1.12 in 2020. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but the analysts did make a minor downgrade to their earnings per share forecasts.

The average price target fell 5.3% to US$28.13, with reduced earnings forecasts clearly tied to a lower valuation estimate. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Healthcare Services Group, with the most bullish analyst valuing it at US$36.00 and the most bearish at US$21.00 per share. 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.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Healthcare Services Group's past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with the forecast 0.07% revenue decline a notable change from historical growth of 7.9% 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 2.7% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Healthcare Services Group is expected to lag 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 Healthcare Services Group. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Healthcare Services Group going out to 2024, and you can see them free on our platform here.

Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Healthcare Services Group that you should be aware of.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.