The latest analyst coverage could presage a bad day for Baytex Energy Corp. (TSE:BTE), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the latest downgrade, the current consensus, from the three analysts covering Baytex Energy, is for revenues of CA$1.2b in 2020, which would reflect a not inconsiderable 19% reduction in Baytex Energy's sales over the past 12 months. Per-share losses are expected to explode, reaching CA$0.35 per share. However, before this estimates update, the consensus had been expecting revenues of CA$1.6b and CA$0.30 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target fell 56% to CA$0.69, implicitly signalling that lower earnings per share are a leading indicator for Baytex Energy's valuation. 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 Baytex Energy analyst has a price target of CA$1.25 per share, while the most pessimistic values it at CA$0.40. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast revenue decline of 19%, a significant reduction from annual growth of 3.2% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 0.8% annually for the foreseeable future. It's pretty clear that Baytex Energy's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Baytex Energy's revenues are expected to grow 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 Baytex Energy.
There might be good reason for analyst bearishness towards Baytex Energy, like major dilution from new stock issuance in the past year. Learn more, and discover the 2 other warning signs we've identified, for free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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