Time To Worry? Analysts Are Downgrading Their LEONI AG (ETR:LEO) Outlook
One thing we could say about the analysts on LEONI AG (ETR:LEO) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the latest downgrade, the current consensus, from the eleven analysts covering LEONI, is for revenues of €4.3b in 2020, which would reflect a chunky 11% reduction in LEONI's sales over the past 12 months. Losses are predicted to fall substantially, shrinking 66% to €4.53. Yet before this consensus update, the analysts had been forecasting revenues of €4.8b and losses of €0.66 per share in 2020. While this year's revenue estimates dropped there was also a loss per share expectations, suggesting the consensus has a bit of a mixed view on the stock.
View our latest analysis for LEONI
The consensus price target fell 32% to €6.09, implicitly signalling that lower earnings per share are a leading indicator for LEONI'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. The most optimistic LEONI analyst has a price target of €12.00 per share, while the most pessimistic values it at €2.00. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
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. We would highlight that sales are expected to reverse, with the forecast 11% revenue decline a notable change from historical growth of 3.9% 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 2.4% next year. It's pretty clear that LEONI's revenues are expected to perform substantially worse 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 LEONI. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower 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.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple LEONI analysts - going out to 2024, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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