Celebrations may be in order for Matador Resources Company (NYSE:MTDR) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with the analysts modelling a real improvement in business performance. Investors have been pretty optimistic on Matador Resources too, with the stock up 45% to US$6.49 over the past week. Could this upgrade be enough to drive the stock even higher?
After the upgrade, the consensus from Matador Resources' eleven analysts is for revenues of US$946m in 2020, which would reflect a measurable 2.6% decline in sales compared to the last year of performance. Statutory earnings per share are supposed to nosedive 68% to US$0.62 in the same period. However, before this estimates update, the consensus had been expecting revenues of US$811m and US$0.46 per share in losses. So we can see that this has sparked a pretty clear upgrade to expectations, with higher revenues anticipated to lead to profit sooner than previously forecast.
It will come as no surprise to learn that the analysts have increased their price target for Matador Resources 26% to US$6.38 on the back of these upgrades. 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. Currently, the most bullish analyst values Matador Resources at US$11.00 per share, while the most bearish prices 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.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 2.6% revenue decline a notable change from historical growth of 29% 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. It's pretty clear that Matador Resources' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that the consensus now expects Matador Resources to become profitable this year. Pleasantly, analysts also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow slower than the wider market. Given that the consensus looks almost universally bullish, with a substantial increase to forecasts and a higher price target, Matador Resources could be worth investigating further.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Matador Resources going out to 2024, and you can see them free on our platform here..
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