The analysts covering Cavco Industries, Inc. (NASDAQ:CVCO) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.

After the downgrade, the consensus from Cavco Industries' twin analysts is for revenues of US$1.0b in 2021, which would reflect a discernible 2.6% decline in sales compared to the last year of performance. Statutory earnings per share are supposed to descend 16% to US$7.69 in the same period. Previously, the analysts had been modelling revenues of US$1.2b and earnings per share (EPS) of US$9.51 in 2021. Indeed, we can see that the analysts are a lot more bearish about Cavco Industries' prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

See our latest analysis for Cavco Industries

The consensus price target fell 8.8% to US$208, with the weaker earnings outlook clearly leading analyst valuation estimates. 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 Cavco Industries analyst has a price target of US$215 per share, while the most pessimistic values it at US$200. This is a very narrow spread of estimates, implying either that Cavco Industries is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Cavco Industries' past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 2.6%, a significant reduction from annual growth of 12% 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 4.7% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Cavco Industries is expected to lag 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 Cavco Industries. 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 analyst estimates for Cavco Industries going out as far as 2022, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies 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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