Investors in City Office REIT, Inc. (NYSE:CIO) had a good week, as its shares rose 6.9% to close at US$10.47 following the release of its quarterly results. It was a respectable set of results; while revenues of US$40m were in line with analyst predictions, statutory losses were 14% smaller than expected, with City Office REIT losing US$0.02 per share. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Taking into account the latest results, City Office REIT's five analysts currently expect revenues in 2020 to be US$158.3m, approximately in line with the last 12 months. Losses are expected to hold steady at around US$0.078. Before this earnings announcement, the analysts had been modelling revenues of US$158.4m and losses of US$0.13 per share in 2020. While the revenue estimates were largely unchanged, sentiment seems to have improved, with the analysts upgrading revenues and making a losses per share in particular.
There's been no major changes to the consensus price target of US$11.17, suggesting that reduced loss estimates are not enough to have a long-term positive impact on the stock's valuation. 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. Currently, the most bullish analyst values City Office REIT at US$15.00 per share, while the most bearish prices it at US$9.00. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
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 0.6% revenue decline a notable change from historical growth of 26% 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 4.8% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - City Office REIT is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analysts reconfirmed their loss per share estimates for next year. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that City Office REIT's revenues are expected to perform worse than the wider industry. The consensus price target held steady at US$11.17, with the latest estimates not enough to have an impact on their price targets.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for City Office REIT going out to 2022, and you can see them free on our platform here.
It is also worth noting that we have found 4 warning signs for City Office REIT (1 can't be ignored!) that you need to take into consideration.
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