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Investors in PacWest Bancorp (NASDAQ:PACW) had a good week, as its shares rose 3.8% to close at US$18.56 following the release of its second-quarter results. Results overall were not great, with earnings of US$0.28 per share falling drastically short of analyst expectations. Meanwhile revenues hit US$295m and were slightly better than forecasts. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Following the latest results, PacWest Bancorp's eight analysts are now forecasting revenues of US$1.15b in 2020. This would be a substantial 29% improvement in sales compared to the last 12 months. Per-share losses are predicted to creep up to US$10.51. Yet prior to the latest earnings, the analysts had been forecasting revenues of US$1.13b and losses of US$10.39 per share in 2020.
As a result there was no major change to the consensus price target of US$23.00, implying that the business is trading roughly in line with expectations despite ongoing losses. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic PacWest Bancorp analyst has a price target of US$26.50 per share, while the most pessimistic values it at US$20.00. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting PacWest Bancorp is an easy business to forecast or the the analysts are all using similar assumptions.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It's clear from the latest estimates that PacWest Bancorp's rate of growth is expected to accelerate meaningfully, with the forecast 29% revenue growth noticeably faster than its historical growth of 4.8%p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 1.9% next year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect PacWest Bancorp to grow faster than the wider industry.
The Bottom Line
The most obvious conclusion is that the analysts made no changes to their forecasts for a loss next year. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry. The consensus price target held steady at US$23.00, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn't be too quick to come to a conclusion on PacWest Bancorp. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple PacWest Bancorp analysts - going out to 2022, and you can see them free on our platform here.
And what about risks? Every company has them, and we've spotted 2 warning signs for PacWest Bancorp you should know about.
This article by Simply Wall St is general in nature. 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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