One thing we could say about the analysts on Bright Horizons Family Solutions Inc. (NYSE:BFAM) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.
Following the downgrade, the consensus from seven analysts covering Bright Horizons Family Solutions is for revenues of US$1.5b in 2020, implying a painful 25% decline in sales compared to the last 12 months. After this downgrade, the company is anticipated to report a loss of US$0.45 in 2020, a sharp decline from a profit over the last year. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$1.8b and losses of US$0.22 per share in 2020. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target was broadly unchanged at US$123, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Bright Horizons Family Solutions at US$142 per share, while the most bearish prices it at US$95.00. 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.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Bright Horizons Family Solutions' past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 25%, a significant reduction from annual growth of 8.6% 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 20% annually for the foreseeable future. It's pretty clear that Bright Horizons Family Solutions' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Bright Horizons Family Solutions' revenues are expected to grow slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Bright Horizons Family Solutions after the downgrade.
Worse, Bright Horizons Family Solutions is labouring under a substantial debt burden, which - if today's forecasts prove accurate - the forecast downgrade could potentially exacerbate. See why we're concerned about Bright Horizons Family Solutions' balance sheet by visiting our risks dashboard for free on our platform here.
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