Market forces rained on the parade of Alumina Limited (ASX:AWC) shareholders today, when the analysts downgraded their forecasts for this year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.
Following the downgrade, the latest consensus from Alumina's ten analysts is for revenues of US$1.2m in 2020, which would reflect a major 189% improvement in sales compared to the last 12 months. Per-share earnings are expected to shoot up 62% to US$0.053. Prior to this update, the analysts had been forecasting revenues of US$1.3m and earnings per share (EPS) of US$0.053 in 2020. So there's been a clear change in analyst sentiment in the recent update, with the analysts making a substantial drop in revenues and reconfirming their earnings per share estimates.
The average price target was steady at AU$1.84 even though revenue estimates declined; likely suggesting the analysts place a higher value on earnings. 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 Alumina analyst has a price target of AU$2.05 per share, while the most pessimistic values it at AU$1.40. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Alumina shareholders.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. The analysts are definitely expecting Alumina's growth to accelerate, with the forecast 189% growth ranking favourably alongside historical growth of 44% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 0.2% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Alumina is expected to grow much faster than its industry.
The Bottom Line
The most obvious conclusion from this consensus update is that there's been no major change in the business' prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Alumina going forwards.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Alumina going out to 2024, and you can see them free on our platform here.
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.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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