The latest analyst coverage could presage a bad day for Valero Energy Corporation (NYSE:VLO), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
After the downgrade, the consensus from Valero Energy's twelve analysts is for revenues of US$82b in 2020, which would reflect an uncomfortable 20% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to plunge 27% to US$4.25 in the same period. Before this latest update, the analysts had been forecasting revenues of US$97b and earnings per share (EPS) of US$6.63 in 2020. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a large cut to earnings per share numbers as well.
It'll come as no surprise then, to learn that the analysts have cut their price target 6.8% to US$81.95. 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. There are some variant perceptions on Valero Energy, with the most bullish analyst valuing it at US$120 and the most bearish at US$33.00 per share. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the 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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 20%, a significant reduction from annual growth of 2.0% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue decline 0.3% annually for the foreseeable future. The forecasts do look bearish for Valero Energy, since they're expecting it to shrink faster than the industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately they also downgraded their revenue estimates, and our aggregation of analyst estimates suggests that Valero Energy revenue is expected to perform worse than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Valero Energy going forwards.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Valero Energy going out to 2024, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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