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The analysts covering Largo Inc. (TSE:LGO) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.
After the downgrade, the consensus from Largo's six analysts is for revenues of US$194m in 2023, which would reflect a concerning 20% decline in sales compared to the last year of performance. Per-share losses are expected to explode, reaching US$0.13 per share. Yet before this consensus update, the analysts had been forecasting revenues of US$224m and losses of US$0.099 per share in 2023. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
Check out our latest analysis for Largo
The consensus price target was broadly unchanged at CA$11.25, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Largo at CA$15.00 per share, while the most bearish prices it at CA$8.00. 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.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. Over the past five years, revenues have declined around 5.8% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for an annualised 26% decline in revenue until the end of 2023. Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 11% annually. So while a broad number of companies are forecast to grow, unfortunately Largo is expected to see its sales affected worse than other companies in the industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Largo.