Market forces rained on the parade of PennyMac Mortgage Investment Trust (NYSE:PMT) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.

Following the latest downgrade, the three analysts covering PennyMac Mortgage Investment Trust provided consensus estimates of US$629m revenue in 2021, which would reflect a stressful 48% decline on its sales over the past 12 months. Statutory earnings per share are anticipated to plunge 71% to US$2.05 in the same period. Before this latest update, the analysts had been forecasting revenues of US$717m and earnings per share (EPS) of US$2.41 in 2021. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a considerable drop in earnings per share numbers as well.

See our latest analysis for PennyMac Mortgage Investment Trust

Despite the cuts to forecast earnings, there was no real change to the US$20.78 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values PennyMac Mortgage Investment Trust at US$22.25 per share, while the most bearish prices it at US$19.00. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting PennyMac Mortgage Investment Trust is an easy business to forecast or the underlying assumptions are obvious.

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. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 73% by the end of 2021. This indicates a significant reduction from annual growth of 35% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue decline 4.6% annually for the foreseeable future. So it's pretty clear that PennyMac Mortgage Investment Trust's revenues are expected to shrink faster 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 PennyMac Mortgage Investment Trust revenue is expected to perform worse than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on PennyMac Mortgage Investment Trust after the downgrade.