Ducommun Incorporated (NYSE:DCO) last week reported its latest first-quarter results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. It looks like a credible result overall - although revenues of US$173m were what the analysts expected, Ducommun surprised by delivering a (statutory) profit of US$0.67 per share, an impressive 93% above what was forecast. 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. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Taking into account the latest results, the four analysts covering Ducommun provided consensus estimates of US$654.4m revenue in 2020, which would reflect a chunky 9.4% decline on its sales over the past 12 months. Statutory earnings per share are expected to nosedive 35% to US$1.85 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$710.8m and earnings per share (EPS) of US$1.73 in 2020. So it's pretty clear that while sentiment around revenues has declined following the latest results, the analysts are now more bullish on the company's earnings power.
There's been no real change to the average price target of US$41.50, with the lower revenue and higher earnings forecasts not expected to meaningfully impact the company's valuation over a longer timeframe. 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. Currently, the most bullish analyst values Ducommun at US$54.00 per share, while the most bearish prices it at US$30.00. This shows there is still a bit of 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.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 9.4% revenue decline a notable change from historical growth of 0.5% 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 3.1% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Ducommun is expected to lag the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Ducommun's earnings potential next year. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. With that said, earnings are more important to the long-term value of the business. The consensus price target held steady at US$41.50, with the latest estimates not enough to have an impact on their price targets.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Ducommun going out to 2022, and you can see them free on our platform here.
Plus, you should also learn about the 2 warning signs we've spotted with Ducommun (including 1 which is a bit unpleasant) .
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