Ribbon Communications Inc. (NASDAQ:RBBN) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's statutory forecasts. The consensus estimated revenue numbers rose, with their view now clearly much more bullish on the company's business prospects. Investor sentiment seems to be improving too, with the share price up 10.0% to US$3.69 over the past 7 days. Whether the upgrade is enough to drive the stock price higher is yet to be seen, however.
Following the upgrade, the most recent consensus for Ribbon Communications from its twin analysts is for revenues of US$872m in 2020 which, if met, would be a major 45% increase on its sales over the past 12 months. Before the latest update, the analysts were foreseeing US$571m of revenue in 2020. It looks like there's been a clear increase in optimism around Ribbon Communications, given the great increase in revenue forecasts.
Notably, the analysts have cut their price target 10.0% to US$4.50, suggesting concerns around Ribbon Communications' valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Ribbon Communications at US$6.00 per share, while the most bearish prices it at US$3.00. 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.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. The analysts are definitely expecting Ribbon Communications'growth to accelerate, with the forecast 45% growth ranking favourably alongside historical growth of 23% per annum 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 4.2% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Ribbon Communications to grow faster than the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that analysts lifted their revenue estimates for this year. They're also forecasting more rapid revenue growth than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Ribbon Communications.
Analysts are definitely bullish on Ribbon Communications, but no company is perfect. Indeed, you should know that there are several potential concerns to be aware of, including dilutive stock issuance over the past year. For more information, you can click through to our platform to learn more about this and the 3 other concerns we've identified .
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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