Paragon Banking Group PLC (LON:PAG) came out with its annual results last week, and we wanted to see how the business is performing and what top analysts think of the company following this report. It was a pretty mixed result, with revenues beating expectations to hit UK£316m. Earnings fell 3.6% short of analyst forecasts, reaching UK£0.48 per share. Following the result, 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. So we gathered the latest post-earnings forecasts to see what analysts are forecasting for next year.
Following last week's earnings report, Paragon Banking Group's eight analysts are forecasting 2020 revenues to be UK£318.7m, approximately in line with the last 12 months. Earnings per share are expected to accumulate 5.4% to UK£0.52. In the lead-up to this report, analysts had been modelling revenues of UK£321.2m and earnings per share (EPS) of UK£0.54 in 2020. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but analysts did make a minor downgrade to their earnings per share forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at UK£5.49, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Paragon Banking Group, with the most bullish analyst valuing it at UK£6.80 and the most bearish at UK£4.63 per share. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
Further, we can compare these estimates to past performance, and see how Paragon Banking Group forecasts compare to the wider market's forecast performance. It's pretty clear that analysts expect Paragon Banking Group's revenue growth will slow down substantially, with revenues next year expected to grow 0.7%, compared to a historical growth rate of 11% over the past five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 11% next year. So it's pretty clear that, while revenue growth is expected to slow down, analysts still expect the wider market to grow faster than Paragon Banking Group.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Paragon Banking Group's revenues are expected to perform worse than the wider market. The consensus price target held steady at UK£5.49, with the latest estimates not enough to have an impact on analysts' estimated valuations.
With that in mind, we wouldn't be too quick to come to a conclusion on Paragon Banking Group. Long-term earnings power is much more important than next year's profits. We have forecasts for Paragon Banking Group going out to 2022, and you can see them free on our platform here.
You can also see whether Paragon Banking Group is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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