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The investors in Party City Holdco Inc.'s (NYSE:PRTY) will be rubbing their hands together with glee today, after the share price leapt 45% to US$3.17 in the week following its third-quarter results. It was overall a positive result, with revenues beating expectations by 9.1% to hit US$534m. Party City Holdco also reported a statutory profit of US$2.24, which was a nice improvement from the loss that the analysts were predicting. 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. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the most recent consensus for Party City Holdco from five analysts is for revenues of US$2.08b in 2021 which, if met, would be a modest 7.8% increase on its sales over the past 12 months. Party City Holdco is also expected to turn profitable, with statutory earnings of US$0.10 per share. Before this earnings report, the analysts had been forecasting revenues of US$2.07b and earnings per share (EPS) of US$0.18 in 2021. So there's definitely been a decline in sentiment after the latest results, noting the large cut to new EPS forecasts.
Althoughthe analysts have revised their earnings forecasts for next year, they've also lifted the consensus price target 22% to US$2.75, suggesting the revised estimates are not indicative of a weaker long-term future for the business. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Party City Holdco analyst has a price target of US$4.00 per share, while the most pessimistic values it at US$1.00. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how analysts think this business will perform. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. For example, we noticed that Party City Holdco's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow 7.8%, well above its historical decline of 1.0% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 9.5% per year. Although Party City Holdco's revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the wider industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Party City Holdco's revenues are expected to perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Party City Holdco going out to 2022, and you can see them free on our platform here..
It is also worth noting that we have found 2 warning signs for Party City Holdco that you need to take into consideration.
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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