One thing we could say about the analysts on Matador Resources Company (NYSE:MTDR) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon. The stock price has risen 6.5% to US$3.42 over the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
Following the latest downgrade, the eleven analysts covering Matador Resources provided consensus estimates of US$813m revenue in 2020, which would reflect an uncomfortable 16% decline on its sales over the past 12 months. Following this this downgrade, earnings are now expected to tip over into loss-making territory, with the analysts forecasting losses of US$0.27 per share in 2020. However, before this estimates update, the consensus had been expecting revenues of US$918m and US$0.094 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 16% to US$4.97, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. 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. The most optimistic Matador Resources analyst has a price target of US$9.00 per share, while the most pessimistic values it at US$3.50. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 16%, a significant reduction from annual growth of 28% over the last five years. Yet aggregate analyst estimates for other companies in the industry suggest that industry revenues are forecast to decline 1.3% next year. The forecasts do look bearish for Matador Resources, since they're expecting it to shrink faster than the 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 downgraded their revenue estimates, and our aggregation of analyst estimates suggests that Matador Resources revenue is expected to perform worse than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
Unfortunately, the earnings downgrade - if accurate - may also place pressure on Matador Resources'mountain of debt, which could lead to some belt tightening for shareholders. See why we're concerned about Matador Resources' balance sheet by visiting our risks dashboard for free on our platform here.
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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