Today is shaping up negative for Ascential plc (LON:ASCL) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the latest downgrade, the current consensus, from the eleven analysts covering Ascential, is for revenues of UK£380m in 2020, which would reflect a definite 8.7% reduction in Ascential's sales over the past 12 months. Per-share earnings are expected to surge 395% to UK£0.098. Prior to this update, the analysts had been forecasting revenues of UK£430m and earnings per share (EPS) of UK£0.12 in 2020. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a considerable drop in earnings per share numbers as well.
It'll come as no surprise then, to learn that the analysts have cut their price target 14% to UK£3.19. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Ascential analyst has a price target of UK£4.40 per share, while the most pessimistic values it at UK£2.13. 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.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 8.7% revenue decline a notable change from historical growth of 8.8% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 1.3% next year. It's pretty clear that Ascential's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Ascential. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Ascential's revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Ascential.
A high debt burden combined with a downgrade of this magnitude always gives us some reason for concern, especially if these forecasts are just the first sign of a business downturn. You can learn more about our debt analysis for free on our platform here.
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