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REV Group, Inc. (NYSE:REVG) Just Reported And Analysts Have Been Lifting Their Price Targets

Simply Wall St
·4 mins read

Last week, you might have seen that REV Group, Inc. (NYSE:REVG) released its quarterly result to the market. The early response was not positive, with shares down 6.6% to US$7.65 in the past week. Revenues of US$582m beat expectations by a respectable 5.5%, although statutory losses per share increased. REV Group lost US$0.06, which was 100% more than what the analysts had included in their models. 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.

View our latest analysis for REV Group

earnings-and-revenue-growth
earnings-and-revenue-growth

Taking into account the latest results, the consensus forecast from REV Group's seven analysts is for revenues of US$2.44b in 2021, which would reflect a satisfactory 5.4% improvement in sales compared to the last 12 months. REV Group is also expected to turn profitable, with statutory earnings of US$0.45 per share. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$2.46b and earnings per share (EPS) of US$0.46 in 2021. So it's pretty clear that, although the analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.

The consensus price target rose 7.1% to US$8.13despite there being no meaningful change to earnings estimates. It could be that the analystsare reflecting the predictability of REV Group's earnings by assigning a price premium. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic REV Group analyst has a price target of US$11.00 per share, while the most pessimistic values it at US$5.90. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

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. Next year brings more of the same, according to the analysts, with revenue forecast to grow 5.4%, in line with its 6.2% annual growth 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 revenues grow 8.2% per year. So although REV Group is expected to maintain its revenue growth rate, it's forecast to grow slower than the wider industry.

The Bottom Line

The most important thing to take away is that there's been no major change in sentiment, with the analysts reconfirming that the business is performing in line with their previous earnings per share estimates. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.

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 estimates - from multiple REV Group analysts - going out to 2022, and you can see them free on our platform here.

That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with REV Group (at least 1 which can't be ignored) , and understanding these should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.