Market forces rained on the parade of Infratil Limited (NZSE:IFT) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. At NZ$5.11, shares are up 6.6% in the past 7 days. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.
Following the latest downgrade, Infratil's two analysts currently expect revenues in 2021 to be NZ$1.3b, approximately in line with the last 12 months. Statutory earnings per share are supposed to tumble 95% to NZ$0.02 in the same period. Before this latest update, the analysts had been forecasting revenues of NZ$1.8b and earnings per share (EPS) of NZ$0.60 in 2021. Indeed, we can see that the analysts are a lot more bearish about Infratil's prospects, administering a pretty serious reduction to revenue estimates and slashing their EPS estimates to boot.
What's most unexpected is that the consensus price target rose 7.2% to NZ$5.12, strongly implying the downgrade to forecasts is not expected to be more than a temporary blip. 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. There are some variant perceptions on Infratil, with the most bullish analyst valuing it at NZ$5.45 and the most bearish at NZ$4.80 per share. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that the analysts have a clear view on its prospects.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would also point out that the forecast 0.5% revenue decline is better than the historical trend, which saw revenues shrink 7.2% annually over the past five years
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 Infratil. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Infratil's revenues are expected to grow slower than the wider market. The increasing price target is not intuitively what we would expect to see, given these downgrades, and we'd suggest shareholders revisit their investment thesis before making a decision.
After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Infratil's business, like dilutive stock issuance over the past year. Learn more, and discover the 4 other warning signs we've identified, for free on our platform here.
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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. Thank you for reading.