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Today is shaping up negative for U.S. Silica Holdings, Inc. (NYSE:SLCA) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business. Bidders are definitely seeing a different story, with the stock price of US$2.24 reflecting a 33% rise in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.
After the downgrade, the consensus from U.S. Silica Holdings' seven analysts is for revenues of US$714m in 2020, which would reflect a painful 48% decline in sales compared to the last year of performance. The loss per share is anticipated to greatly reduce in the near future, narrowing 61% to US$2.06. However, before this estimates update, the consensus had been expecting revenues of US$963m and US$2.40 per share in losses. We can see there's definitely been a change in sentiment in this update, with the analysts administering a meaningful downgrade to this year's revenue estimates, while at the same time reducing their loss estimates.
There was a decent 10% increase in the price target to US$1.96, with the analysts clearly signalling that the expected reduction in losses is a positive, despite a weaker revenue outlook. 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 U.S. Silica Holdings analyst has a price target of US$3.50 per share, while the most pessimistic values it at US$0.50. 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. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the U.S. Silica Holdings' past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 48%, a significant reduction from annual growth of 21% over the last five years. Yet aggregate analyst estimates for other companies in the industry suggest that industry revenues are forecast to decline 0.7% next year. So it's pretty clear that U.S. Silica Holdings' revenues are expected to shrink faster than the wider industry.
The Bottom Line
Unfortunately they also downgraded their revenue estimates, and our aggregation of analyst estimates suggests that U.S. Silica Holdings revenue is expected to perform worse than the wider market. The increasing price target is not intuitively what we would expect to see, given these downgrades, and we'd suggest shareholders revisit their investment thesis before making a decision.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with U.S. Silica Holdings, including the risk of cutting its dividend. For more information, you can click here to discover this and the 2 other flags we've identified.
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