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The analysts covering American Financial Group, Inc. (NYSE:AFG) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. 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.
After the downgrade, the consensus from American Financial Group's three analysts is for revenues of US$4.9b in 2020, which would reflect a painful 33% decline in sales compared to the last year of performance. Statutory earnings per share are supposed to plunge 44% to US$1.65 in the same period. Previously, the analysts had been modelling revenues of US$6.0b and earnings per share (EPS) of US$3.96 in 2020. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a pretty serious decline to earnings per share numbers as well.
It'll come as no surprise then, to learn that the analysts have cut their price target 8.9% to US$74.67. 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. There are some variant perceptions on American Financial Group, with the most bullish analyst valuing it at US$93.00 and the most bearish at US$63.00 per share. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 33%, a significant reduction from annual growth of 5.3% 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 3.4% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - American Financial Group is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of American Financial Group.
Worse, American Financial Group is labouring under a substantial debt burden, which - if today's forecasts prove accurate - the forecast downgrade could potentially exacerbate. You can learn more about our debt analysis for free on our platform here.
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