Today is shaping up negative for Hexagon Composites ASA (OB:HEX) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon. Shares are up 7.3% to kr25.00 in the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
Following the downgrade, the consensus from three analysts covering Hexagon Composites is for revenues of kr3.1b in 2020, implying a chunky 9.4% decline in sales compared to the last 12 months. Statutory earnings per share are supposed to crater 81% to kr0.12 in the same period. Before this latest update, the analysts had been forecasting revenues of kr4.4b and earnings per share (EPS) of kr1.01 in 2020. Indeed, we can see that the analysts are a lot more bearish about Hexagon Composites' prospects, administering a sizeable cut to revenue estimates and slashing their EPS estimates to boot.
It'll come as no surprise then, to learn that the analysts have cut their price target 5.7% to kr41.50. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Hexagon Composites, with the most bullish analyst valuing it at kr53.00 and the most bearish at kr30.00 per share. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
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 9.4% revenue decline a notable change from historical growth of 13% 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 2.6% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Hexagon Composites is expected to lag the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Hexagon Composites. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Hexagon Composites' 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 Hexagon Composites.
As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Hexagon Composites' financials, such as its declining profit margins. For more information, you can click here to discover this and the 4 other warning signs we've identified.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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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