One thing we could say about the analysts on Russel Metals Inc. (TSE:RUS) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
Following the latest downgrade, the five analysts covering Russel Metals provided consensus estimates of CA$3.0b revenue in 2020, which would reflect a definite 19% decline on its sales over the past 12 months. Before the latest update, the analysts were foreseeing CA$3.3b of revenue in 2020. The consensus view seems to have become more pessimistic on Russel Metals, noting the measurable cut to revenue estimates in this update.
Notably, the analysts have cut their price target 16% to CA$18.70, suggesting concerns around Russel Metals' valuation. 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. There are some variant perceptions on Russel Metals, with the most bullish analyst valuing it at CA$21.00 and the most bearish at CA$15.50 per share. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would highlight that sales are expected to reverse, with the forecast 19% revenue decline a notable change from historical growth of 4.2% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 0.5% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Russel Metals is expected to lag the wider industry.
The Bottom Line
The clear low-light was that analysts slashing their revenue forecasts for Russel Metals this year. They also expect company revenue 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. Given the stark change in sentiment, we'd understand if investors became more cautious on Russel Metals after today.
After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Russel Metals' business, like a weak balance sheet. For more information, you can click here to discover this and the 3 other concerns we've identified.
We also provide an overview of the Russel Metals Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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