The latest analyst coverage could presage a bad day for Energean plc (LON:ENOG), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Surprisingly the share price has been buoyant, rising 25% to US$5.80 in the past 7 days. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.
Following the downgrade, the latest consensus from Energean's five analysts is for revenues of US$162m in 2020, which would reflect a huge 114% improvement in sales compared to the last 12 months. Losses are presumed to reduce, shrinking 17% from last year to US$0.42. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$191m and losses of US$0.39 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 was broadly unchanged at UK£9.61, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. 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. Currently, the most bullish analyst values Energean at UK£11.10 per share, while the most bearish prices it at UK£7.80. 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.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. The analysts are definitely expecting Energean's growth to accelerate, with the forecast 114% growth ranking favourably alongside historical growth of 20% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 13% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Energean to grow faster 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, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Energean after today.
There might be good reason for analyst bearishness towards Energean, like dilutive stock issuance over the past year. Learn more, and discover the 2 other warning signs we've identified, for free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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.
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