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Market forces rained on the parade of Conn's, Inc. (NASDAQ:CONN) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.
Following the latest downgrade, the current consensus, from the three analysts covering Conn's, is for revenues of US$1.5b in 2023, which would reflect a discernible 6.7% reduction in Conn's' sales over the past 12 months. Statutory earnings per share are anticipated to crater 76% to US$0.69 in the same period. Prior to this update, the analysts had been forecasting revenues of US$1.6b and earnings per share (EPS) of US$1.61 in 2023. Indeed, we can see that the analysts are a lot more bearish about Conn's' prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
The consensus price target fell 33% to US$15.00, with the weaker earnings outlook clearly leading analyst valuation estimates. 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 Conn's at US$19.00 per share, while the most bearish prices it at US$13.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Conn's shareholders.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. Over the past five years, revenues have declined around 0.5% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for an annualised 8.9% decline in revenue until the end of 2023. Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 6.5% annually. So while a broad number of companies are forecast to grow, unfortunately Conn's is expected to see its sales affected worse than other companies in the industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Conn's. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Conn's' revenues are expected to grow slower 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 Conn's, given its declining profit margins. For more information, you can click here to discover this and the 2 other warning signs 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.