The latest analyst coverage could presage a bad day for Barco NV (EBR:BAR), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon. Surprisingly the share price has been buoyant, rising 14% to €141 in the past 7 days. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.
Following the downgrade, the consensus from three analysts covering Barco is for revenues of €913m in 2020, implying a definite 16% decline in sales compared to the last 12 months. Statutory earnings per share are anticipated to plummet 53% to €3.60 in the same period. Prior to this update, the analysts had been forecasting revenues of €1.2b and earnings per share (EPS) of €9.31 in 2020. Indeed, we can see that the analysts are a lot more bearish about Barco's prospects, administering a sizeable cut to revenue estimates and slashing their EPS estimates to boot.
It'll come as no surprise then, to learn that the analysts have cut their price target 29% to €187. 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 Barco analyst has a price target of €195 per share, while the most pessimistic values it at €175. Still, with such a tight range of estimates, it suggests the analysts have a pretty good idea of what they think the company is worth.
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 16%, a significant reduction from annual growth of 1.6% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 5.3% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Barco is expected to lag 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. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower 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.
In light of the downgrade, our automated discounted cash flow valuation tool suggests that Barco could now be moderately overvalued. Learn why, and examine the assumptions that underpin our valuation by visiting our free platform here to learn more about our valuation approach.
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.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.