It's shaping up to be a tough period for Sunstone Hotel Investors, Inc. (NYSE:SHO), which a week ago released some disappointing quarterly results that could have a notable impact on how the market views the stock. It was not a great statutory result, with revenues coming in 44% lower than the analysts predicted. Unsurprisingly, earnings also fell seriously short of forecasts, turning into a per-share loss of US$0.43. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, the consensus forecast from Sunstone Hotel Investors' ten analysts is for revenues of US$571.5m in 2021, which would reflect a decent 14% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 60% to US$0.61. Before this earnings announcement, the analysts had been modelling revenues of US$587.8m and losses of US$0.54 per share in 2021. While next year's revenue estimates dropped there was also a loss per share expectations, suggesting the consensus has a bit of a mixed view on the stock.
The average price target was broadly unchanged at US$9.10, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the 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. The most optimistic Sunstone Hotel Investors analyst has a price target of US$12.00 per share, while the most pessimistic values it at US$6.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying 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. One thing stands out from these estimates, which is that Sunstone Hotel Investors is forecast to grow faster in the future than it has in the past, with revenues expected to grow 14%. If achieved, this would be a much better result than the 7.1% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue grow 6.0% per year. So it looks like Sunstone Hotel Investors is expected to grow faster than its competitors, at least for a while.
The Bottom Line
The most important thing to take away is that the analysts increased their loss per share estimates for next year. Regrettably, they also downgraded their revenue estimates, but the latest forecasts still imply the business will grow faster than the wider industry. 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. We have forecasts for Sunstone Hotel Investors going out to 2023, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Sunstone Hotel Investors , and understanding it should be part of your investment process.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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