The latest analyst coverage could presage a bad day for Laredo Petroleum, Inc. (NYSE:LPI), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the latest downgrade, the nine analysts covering Laredo Petroleum provided consensus estimates of US$703m revenue in 2020, which would reflect an uncomfortable 16% decline on its sales over the past 12 months. The losses are expected to disappear over the next year or so, with forecasts for a profit of US$0.27 per share this year. Before this latest update, the analysts had been forecasting revenues of US$878m and earnings per share (EPS) of US$0.36 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 19% to US$1.77. 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. There are some variant perceptions on Laredo Petroleum, with the most bullish analyst valuing it at US$5.50 and the most bearish at US$0.25 per share. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. 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.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 16% revenue decline a notable change from historical growth of 9.2% over the last five years. Yet aggregate analyst estimates for other companies in the industry suggest that industry revenues are forecast to decline 0.3% next year. The forecasts do look bearish for Laredo Petroleum, 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 cut their revenue estimates for this year, and they expect sales to lag the wider market. That said, earnings per share are more important for creating value for shareholders. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Laredo Petroleum analysts - going out to 2023, 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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