Market forces rained on the parade of Safilo Group S.p.A. (BIT:SFL) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.
Following the downgrade, the consensus from four analysts covering Safilo Group is for revenues of €830m in 2020, implying a chunky 12% decline in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 82% to €0.20. Yet prior to the latest estimates, the analysts had been forecasting revenues of €932m and losses of €0.091 per share in 2020. 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 18% to €0.86, implicitly signalling that lower earnings per share are a leading indicator for Safilo Group's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Safilo Group analyst has a price target of €1.10 per share, while the most pessimistic values it at €0.65. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
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. Over the past five years, revenues have declined around 7.2% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for a 12% decline in revenue next year. Compare this against analyst estimates for companies in the wider industry, which suggest that revenues (in aggregate) are expected to grow 5.1% next year. So while a broad number of companies are forecast to decline, unfortunately Safilo Group is expected to see its sales affected worse than other companies in the industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Safilo Group. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Safilo Group'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 Safilo Group.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Safilo Group going out to 2022, and you can see them 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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