Today is shaping up negative for Mayfield Childcare Limited (ASX:MFD) shareholders, with the covering analyst delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) estimates were cut sharply as the analyst factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the downgrade, the consensus from solitary analyst covering Mayfield Childcare is for revenues of AU$34m in 2020, implying a small 4.9% decline in sales compared to the last 12 months. Statutory earnings per share are anticipated to plunge 31% to AU$0.073 in the same period. Before this latest update, the analyst had been forecasting revenues of AU$38m and earnings per share (EPS) of AU$0.13 in 2020. Indeed, we can see that the analyst is a lot more bearish about Mayfield Childcare's prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
The consensus price target fell 30% to AU$0.95, with the weaker earnings outlook clearly leading analyst valuation 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 4.9% revenue decline a notable change from historical growth of 30% over the last three years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 13% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Mayfield Childcare is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analyst cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that Mayfield Childcare's revenues are expected to grow 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.
Worse, Mayfield Childcare is labouring under a substantial debt burden, which - if today's forecasts prove accurate - the forecast downgrade could potentially exacerbate. You can learn more about our debt analysis for free on our platform here.
We also provide an overview of the Mayfield Childcare Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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