The analysts might have been a bit too bullish on Park-Ohio Holdings Corp. (NASDAQ:PKOH), given that the company fell short of expectations when it released its first-quarter results last week. It wasn't a great result overall - while revenue fell marginally short of analyst estimates at US$366m, statutory earnings missed forecasts by an incredible 83%, coming in at just US$0.10 per share. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Following the recent earnings report, the consensus from four analysts covering Park-Ohio Holdings is for revenues of US$1.34b in 2020, implying an uneasy 15% decline in sales compared to the last 12 months. Statutory earnings per share are expected to nosedive 95% to US$0.13 in the same period. Before this earnings report, the analysts had been forecasting revenues of US$1.40b and earnings per share (EPS) of US$1.71 in 2020. The analysts seem less optimistic after the recent results, reducing their sales forecasts and making a pretty serious reduction to earnings per share numbers.
It'll come as no surprise then, to learn thatthe analysts have cut their price target 9.5% to US$19.00. 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 Park-Ohio Holdings at US$25.00 per share, while the most bearish prices it at US$10.00. 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.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Park-Ohio Holdings' past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with the forecast 15% revenue decline a notable change from historical growth of 3.8% 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 6.0% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Park-Ohio Holdings is expected to lag the wider industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Park-Ohio Holdings. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
With that in mind, we wouldn't be too quick to come to a conclusion on Park-Ohio Holdings. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Park-Ohio Holdings analysts - going out to 2024, and you can see them free on our platform here.
Even so, be aware that Park-Ohio Holdings is showing 3 warning signs in our investment analysis , and 1 of those is potentially serious...
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