Today is shaping up negative for Moelis & Company (NYSE:MC) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the downgrade, the consensus from seven analysts covering Moelis is for revenues of US$645m in 2020, implying an uneasy 14% decline in sales compared to the last 12 months. Statutory earnings per share are supposed to tumble 41% to US$1.25 in the same period. Before this latest update, the analysts had been forecasting revenues of US$853m and earnings per share (EPS) of US$1.75 in 2020. It looks like analyst sentiment has declined substantially, with a sizeable cut to revenue estimates and a large cut to earnings per share numbers as well.
The consensus price target fell 14% to US$31.50, with the weaker earnings outlook clearly leading analyst valuation estimates. 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 Moelis analyst has a price target of US$43.00 per share, while the most pessimistic values it at US$20.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast revenue decline of 14%, a significant reduction from annual growth of 10% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 2.1% next year. It's pretty clear that Moelis' revenues are expected to perform substantially worse than the wider industry.
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 Moelis. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Moelis' revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Moelis.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Moelis, including the risk of cutting its dividend. Learn more, and discover the 2 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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