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Today is shaping up negative for Open Lending Corporation (NASDAQ:LPRO) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business. The stock price has risen 5.3% to US$10.91 over the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.
Following the latest downgrade, the current consensus, from the eleven analysts covering Open Lending, is for revenues of US$196m in 2022, which would reflect a discernible 7.9% reduction in Open Lending's sales over the past 12 months. Statutory earnings per share are anticipated to descend 19% to US$0.67 in the same period. Before this latest update, the analysts had been forecasting revenues of US$219m and earnings per share (EPS) of US$0.80 in 2022. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a real cut to earnings per share numbers as well.
The consensus price target fell 25% to US$17.70, with the weaker earnings outlook clearly leading analyst valuation estimates. 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 Open Lending at US$55.00 per share, while the most bearish prices it at US$8.00. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with a forecast 15% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 22% over the last year. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 6.5% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Open Lending is expected to lag the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Open Lending. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Open Lending's revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Open Lending.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Open Lending analysts - going out to 2024, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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