One thing we could say about the analysts on M&G plc (LON:MNG) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.
Following the latest downgrade, the current consensus, from the seven analysts covering M&G, is for revenues of UK£13b in 2020, which would reflect a concerning 61% reduction in M&G's sales over the past 12 months. Statutory earnings per share are supposed to plunge 38% to UK£0.26 in the same period. Previously, the analysts had been modelling revenues of UK£25b and earnings per share (EPS) of UK£0.27 in 2020. Indeed, we can see that analyst sentiment has declined measurably after the new consensus came out, with a sizeable cut to revenue estimates and a minor downgrade to EPS estimates to boot.
The consensus price target fell 5.8% to UK£2.05, with the weaker earnings outlook clearly leading analyst valuation estimates. 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. The most optimistic M&G analyst has a price target of UK£3.00 per share, while the most pessimistic values it at UK£1.30. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. Compare this against analyst estimates for companies in the wider industry, which suggest that revenues (in aggregate) are expected to decline 12% next year. While this is interesting, M&G's, revenues are still expected to shrink next year, and at a faster rate than the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately they also downgraded their revenue estimates, and our aggregation of analyst estimates suggests that M&G revenue is expected to perform worse than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on M&G after today.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple M&G analysts - 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.
If you spot an error that warrants correction, please contact the editor at email@example.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.