Things Look Grim For WH Smith PLC (LON:SMWH) After Today's Downgrade
One thing we could say about the analysts on WH Smith PLC (LON:SMWH) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well. At UK£10.96, shares are up 9.2% in the past 7 days. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
Following the latest downgrade, the six analysts covering WH Smith provided consensus estimates of UK£1.3b revenue in 2020, which would reflect a definite 8.1% decline on its sales over the past 12 months. Prior to the latest estimates, the analysts were forecasting revenues of UK£1.4b in 2020. The consensus view seems to have become more pessimistic on WH Smith, noting the substantial drop in revenue estimates in this update.
View our latest analysis for WH Smith
We'd point out that there was no major changes to their price target of UK£18.16, suggesting the latest estimates were not enough to shift their view on the value of the business. 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 WH Smith analyst has a price target of UK£24.80 per share, while the most pessimistic values it at UK£7.70. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 8.1% revenue decline a notable change from historical growth of 3.1% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 3.6% next year. It's pretty clear that WH Smith's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The clear low-light was that analysts slashing their revenue forecasts for WH Smith this year. They're also anticipating slower revenue growth than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on WH Smith after the downgrade.
A high debt burden combined with a downgrade of this magnitude always gives us some reason for concern, especially if these forecasts are just the first sign of a business downturn. You can learn more about our debt analysis for free on our platform here.
We also provide an overview of the WH Smith Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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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