It's shaping up to be a tough period for Service Stream Limited (ASX:SSM), which a week ago released some disappointing interim results that could have a notable impact on how the market views the stock. Service Stream missed analyst estimates, with revenues of AU$498m and statutory earnings per share (EPS) of AU$0.13, missing by 4.1% and 4.6% respectively. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We've gathered the most recent statutory forecasts to see whether analysts have changed their earnings models, following these results.
Following last week's earnings report, Service Stream's four analysts are forecasting 2020 revenues to be AU$999.9m, approximately in line with the last 12 months. Statutory earnings per share are expected to accumulate 6.9% to AU$0.14. Yet prior to the latest earnings, analysts had been forecasting revenues of AU$1.02b and earnings per share (EPS) of AU$0.14 in 2020. Analysts are less bullish than they were before these results, given the reduced revenue forecasts and the minor downgrade to earnings per share expectations.
Despite the cuts to forecast earnings, there was no real change to the AU$3.07 price target, showing that analysts don't think the changes have a meaningful impact on the stock's intrinsic value. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Service Stream, with the most bullish analyst valuing it at AU$3.20 and the most bearish at AU$2.86 per share. Still, with such a tight range of estimates, it suggests analysts have a pretty good idea of what they think the company is worth.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. These estimates imply that sales are expected to slow, with a forecast revenue decline of 0.1% a significant reduction from annual growth of 19% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 8.5% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - analysts also expect Service Stream to grow slower than the wider market.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Service Stream. Unfortunately, analysts also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider market. Even so, earnings per share are more important to the intrinsic value of the business. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Service Stream going out to 2022, and you can see them free on our platform here..
It might also be worth considering whether Service Stream's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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