One thing we could say about the analysts on Chevron Corporation (NYSE:CVX) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. Shares are up 8.1% to US$71.95 in the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
Following the latest downgrade, the 13 analysts covering Chevron provided consensus estimates of US$107b revenue in 2020, which would reflect a painful 24% decline on its sales over the past 12 months. Statutory earnings per share are supposed to nosedive 46% to US$0.84 in the same period. Before this latest update, the analysts had been forecasting revenues of US$119b and earnings per share (EPS) of US$2.80 in 2020. Indeed, we can see that the analysts are a lot more bearish about Chevron's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.
It'll come as no surprise then, to learn that the analysts have cut their price target 13% to US$95.92. 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 Chevron at US$141 per share, while the most bearish prices it at US$63.00. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Chevron's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 24%, a significant reduction from annual growth of 0.3% over the last five years. Yet aggregate analyst estimates for other companies in the industry suggest that industry revenues are forecast to decline 0.3% next year. The forecasts do look bearish for Chevron, since they're expecting it to shrink faster than 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 Chevron. Unfortunately they also cut their revenue estimates for this year, and they expect sales to lag the wider market. That said, earnings per share are more important for creating value for shareholders. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Chevron.
There might be good reason for analyst bearishness towards Chevron, like its declining profit margins. For more information, you can click here to discover this and the 3 other risks 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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