The MEG Energy Corp. (TSE:MEG) Analysts Have Been Trimming Their Sales Forecasts
The analysts covering MEG Energy Corp. (TSE:MEG) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. The stock price has risen 8.6% to CA$20.96 over the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.
Following the downgrade, the latest consensus from MEG Energy's four analysts is for revenues of CA$5.9b in 2022, which would reflect a decent 18% improvement in sales compared to the last 12 months. Per-share earnings are expected to soar 94% to CA$4.14. Previously, the analysts had been modelling revenues of CA$6.7b and earnings per share (EPS) of CA$4.46 in 2022. It looks like analyst sentiment has fallen somewhat in this update, with a measurable cut to revenue estimates and a minor downgrade to earnings per share numbers as well.
View our latest analysis for MEG Energy
Despite the cuts to forecast earnings, there was no real change to the CA$24.93 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. 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 MEG Energy analyst has a price target of CA$34.00 per share, while the most pessimistic values it at CA$19.00. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. It's clear from the latest estimates that MEG Energy's rate of growth is expected to accelerate meaningfully, with the forecast 25% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 11% p.a. 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 2.2% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect MEG Energy to grow faster than the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Given the stark change in sentiment, we'd understand if investors became more cautious on MEG Energy after today.
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 MEG Energy's business, like dilutive stock issuance over the past year. For more information, you can click here to discover this and the 4 other risks we've identified.
We also provide an overview of the MEG Energy Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
