Today is shaping up negative for EPR Properties (NYSE:EPR) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.
Following the downgrade, the consensus from four analysts covering EPR Properties is for revenues of US$526m in 2020, implying a not inconsiderable 19% decline in sales compared to the last 12 months. Statutory earnings per share are supposed to crater 33% to US$1.03 in the same period. Previously, the analysts had been modelling revenues of US$663m and earnings per share (EPS) of US$0.95 in 2020. Indeed we can see that the consensus opinion has undergone some fundamental changes after the recent consensus updates, with a pretty serious reduction to revenues at the same time as boosting EPS forecasts.
The consensus has made no major changes to the price target of US$31.63, suggesting the forecast improvement in earnings is expected to offset the decline in revenues this year. 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. There are some variant perceptions on EPR Properties, with the most bullish analyst valuing it at US$45.00 and the most bearish at US$16.00 per share. 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 19%, 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 5.1% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - EPR Properties is expected to lag the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that EPR Properties' revenues are expected to grow slower than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on EPR Properties after today.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with EPR Properties, including its declining profit margins. Learn more, and discover the 4 other flags we've identified, for free on our platform here.
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