The latest analyst coverage could presage a bad day for Murphy Oil Corporation (NYSE:MUR), 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) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the latest downgrade, the twelve analysts covering Murphy Oil provided consensus estimates of US$2.2b revenue in 2020, which would reflect a disturbing 23% decline on its sales over the past 12 months. After this downgrade, the company is anticipated to report a loss of US$2.52 in 2020, a sharp decline from a profit over the last year. However, before this estimates update, the consensus had been expecting revenues of US$2.6b and US$0.62 per share in losses. 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 fell 33% to US$13.00, implicitly signalling that lower earnings per share are a leading indicator for Murphy Oil's 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. Currently, the most bullish analyst values Murphy Oil at US$34.00 per share, while the most bearish prices it at US$7.00. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. 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.
Of course, another way to look at these forecasts is to place them into context against the industry itself. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue shrink 0.3% per year. So it's pretty clear that Murphy Oil sales are expected to decline at a faster rate than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Murphy Oil. Unfortunately they also downgraded their revenue estimates, and our aggregation of analyst estimates suggests that Murphy Oil revenue is expected to perform worse than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
That said, the analysts might have good reason to be negative on Murphy Oil, given the risk of cutting its dividend. For more information, you can click here to discover this and the 2 other risks we've identified.
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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