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Celebrations may be in order for ARC Resources Ltd. (TSE:ARX) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with the analysts modelling a real improvement in business performance. ARC Resources has also found favour with investors, with the stock up a worthy 14% to CA$17.96 over the past week. We'll be curious to see if these new estimates convince the market to lift the stock price higher still.
After this upgrade, ARC Resources' two analysts are now forecasting revenues of CA$7.0b in 2022. This would be a credible 6.2% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to soar 249% to CA$2.83. Prior to this update, the analysts had been forecasting revenues of CA$5.9b and earnings per share (EPS) of CA$2.17 in 2022. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.
Despite these upgrades, the analysts have not made any major changes to their price target of CA$24.38, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. 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 ARC Resources analyst has a price target of CA$29.00 per share, while the most pessimistic values it at CA$16.00. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
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. It's pretty clear that there is an expectation that ARC Resources' revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 13% growth on an annualised basis. This is compared to a historical growth rate of 35% over the past five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 1.6% per year. So it's pretty clear that, while ARC Resources' revenue growth is expected to slow, it's still expected to grow faster than the industry itself.
The Bottom Line
The biggest takeaway for us from these new estimates is that analysts upgraded their earnings per share estimates, with improved earnings power expected for this year. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So ARC Resources could be a good candidate for more research.
Analysts are definitely bullish on ARC Resources, but no company is perfect. Indeed, you should know that there are several potential concerns to be aware of, including its declining profit margins. You can learn more, and discover the 3 other risks we've identified, for free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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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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