It's been a good week for Resources Connection, Inc. (NASDAQ:RECN) shareholders, because the company has just released its latest second-quarter results, and the shares gained 6.7% to US$17.40. Revenues were US$185m, approximately in line with what analysts expected, although statutory earnings per share (EPS) crushed expectations, coming in at US$0.38, an impressive 27% ahead of estimates. Earnings are an important time for investors, as they can track a company's performance, look at what top analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether analysts have changed their mind on Resources Connection after the latest results.
Following last week's earnings report, Resources Connection's two analysts are forecasting 2020 revenues to be US$709.7m, approximately in line with the last 12 months. Statutory earnings per share are forecast to decrease 3.5% to US$0.99 in the same period. In the lead-up to this report, analysts had been modelling revenues of US$721.3m and earnings per share (EPS) of US$1.03 in 2020. Analysts seem to have become a little more negative on the business after the latest results, given the small dip in their earnings per share forecasts for next year.
The average analyst price target fell 6.1% to US$15.50, with reduced earnings forecasts clearly tied to a lower valuation estimate.
It can also be useful to step back and take a broader view of how analyst forecasts compare to Resources Connection's performance in recent years. We would highlight that sales are expected to reverse, with the forecast 1.2% revenue decline a notable change from historical growth of 5.0% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 6.7% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - analysts also expect Resources Connection to grow slower than the wider market.
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. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At least one analyst has provided forecasts out to 2021, which can be seen for free on our platform here.
It might also be worth considering whether Resources Connection's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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