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Results: Essent Group Ltd. Beat Earnings Expectations And Analysts Now Have New Forecasts

Investors in Essent Group Ltd. (NYSE:ESNT) had a good week, as its shares rose 7.0% to close at US$28.62 following the release of its quarterly results. Revenues were US$229m, approximately in line with expectations, although statutory earnings per share (EPS) performed substantially better. EPS of US$1.52 were also better than expected, beating analyst predictions by 10%. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

Check out our latest analysis for Essent Group

NYSE:ESNT Past and Future Earnings May 12th 2020
NYSE:ESNT Past and Future Earnings May 12th 2020

Following last week's earnings report, Essent Group's eight analysts are forecasting 2020 revenues to be US$902.2m, approximately in line with the last 12 months. Statutory earnings per share are forecast to tumble 36% to US$3.76 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$932.3m and earnings per share (EPS) of US$4.85 in 2020. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a pretty serious reduction to earnings per share estimates.

The consensus price target fell 9.0% to US$40.82, with the weaker earnings outlook clearly leading valuation estimates. 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 Essent Group analyst has a price target of US$56.00 per share, while the most pessimistic values it at US$32.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

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. We would highlight that Essent Group's revenue growth is expected to slow, with forecast 0.7% increase next year well below the historical 22%p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 1.4% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Essent Group.

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. 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. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Essent Group's future valuation.

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. We have forecasts for Essent Group going out to 2021, and you can see them free on our platform here.

You still need to take note of risks, for example - Essent Group has 2 warning signs we think you should be aware of.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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