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The analysts covering Suncor Energy Inc. (TSE:SU) 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) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. Bidders are definitely seeing a different story, with the stock price of CA$22.98 reflecting a 40% rise in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.
Following the downgrade, the consensus from nine analysts covering Suncor Energy is for revenues of CA$24b in 2020, implying a sizeable 37% decline in sales compared to the last 12 months. After this downgrade, the company is anticipated to report a loss of CA$0.62 in 2020, a sharp decline from a profit over the last year. Yet prior to the latest estimates, the analysts had been forecasting revenues of CA$27b and losses of CA$0.43 per share in 2020. 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 Suncor Energy
The consensus price target fell 6.0% to CA$34.38, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. 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. Currently, the most bullish analyst values Suncor Energy at CA$53.00 per share, while the most bearish prices it at CA$24.00. 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.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 37% revenue decline a notable change from historical growth of 4.1% 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 1.4% annually for the foreseeable future. So it's pretty clear that Suncor Energy's revenues are expected to shrink faster than the wider 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 Suncor Energy. Unfortunately they also downgraded their revenue estimates, and our aggregation of analyst estimates suggests that Suncor Energy revenue is expected to perform worse than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.