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US$15.14: That's What Analysts Think Ready Capital Corporation Is Worth After Its Latest Results

Simply Wall St

There's been a major selloff in Ready Capital Corporation (NYSE:RC) shares in the week since it released its annual report, with the stock down 26% to US$10.74. Revenues came in 2.0% below expectations, at US$224m. Statutory earnings per share were relatively better off, with a per-share profit of US$1.72 being roughly in line with analyst estimates. This is an important time for investors, as they can track a company's performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. We thought readers would find it interesting to see analysts' latest (statutory) post-earnings forecasts for next year.

View our latest analysis for Ready Capital

NYSE:RC Past and Future Earnings, March 15th 2020

After the latest results, the four analysts covering Ready Capital are now predicting revenues of US$264.7m in 2020. If met, this would reflect a decent 18% improvement in sales compared to the last 12 months. Statutory earnings per share are forecast to dip 9.0% to US$1.57 in the same period. Yet prior to the latest earnings, analysts had been forecasting revenues of US$268.6m and earnings per share (EPS) of US$1.67 in 2020. Analysts seem to have become a little more negative on the business after the latest results, given the minor downgrade to their earnings per share forecasts for next year.

The average analyst price target fell 9.8% to US$15.14, with reduced earnings forecasts clearly tied to a lower valuation estimate. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Ready Capital at US$17.00 per share, while the most bearish prices it at US$13.00. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that analysts have a clear view on its prospects.

Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. We would highlight that Ready Capital's revenue growth is expected to slow, with forecast 18% increase next year well below the historical 23%p.a. growth over the last five years. Compare this to the other companies in this market with analyst coverage, which are forecast to grow their revenue at 19% per year. So it's pretty clear that, while Ready Capital's revenue growth is expected to slow, it's expected to grow roughly in line with the industry.

The Bottom Line

The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. They also reconfirmed their revenue estimates, with the company predicted to grow at about the same rate as the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by the latest results, leading to a lower estimate of Ready Capital's future valuation.

With that in mind, we wouldn't be too quick to come to a conclusion on Ready Capital. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Ready Capital going out to 2022, and you can see them free on our platform here..

It might also be worth considering whether Ready Capital's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.