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The latest analyst coverage could presage a bad day for Magnolia Oil & Gas Corporation (NYSE:MGY), 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.
After the downgrade, the consensus from Magnolia Oil & Gas' nine analysts is for revenues of US$643m in 2020, which would reflect a painful 31% decline in sales compared to the last year of performance. After this downgrade, the company is anticipated to report a loss of US$0.42 in 2020, a sharp decline from a profit over the last year. However, before this estimates update, the consensus had been expecting revenues of US$716m and US$0.26 per share in losses. 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 25% to US$7.05, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. 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. The most optimistic Magnolia Oil & Gas analyst has a price target of US$14.00 per share, while the most pessimistic values it at US$4.00. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. Compare this against analyst estimates for companies in the wider industry, which suggest that revenues (in aggregate) are expected to decline 0.4% next year. So it's pretty clear that Magnolia Oil & Gas sales are expected to decline at a faster rate than the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately they also cut their revenue estimates for this year, and they expect sales to lag the wider market. That said, earnings per share are more important for creating value for shareholders. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Magnolia Oil & Gas.
There might be good reason for analyst bearishness towards Magnolia Oil & Gas, like dilutive stock issuance over the past year. Learn more, and discover the 3 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.
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