SM Energy Company (NYSE:SM) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. The consensus estimated revenue numbers rose, with their view now clearly much more bullish on the company's business prospects.
Following the upgrade, the latest consensus from SM Energy's ten analysts is for revenues of US$1.8b in 2021, which would reflect a notable 13% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 60% to US$2.56. However, before this estimates update, the consensus had been expecting revenues of US$1.7b and US$2.72 per share in losses. So there seems to have been a moderate uplift in analyst sentiment with the latest consensus release, given the upgrades to both revenue and loss per share forecasts for this year.
Despite these upgrades, the analysts have not made any major changes to their price target of US$27.73, implying that their latest estimates don't have a long term impact on what they think the stock is worth. 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. There are some variant perceptions on SM Energy, with the most bullish analyst valuing it at US$42.00 and the most bearish at US$10.00 per share. 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. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Of course, another way to look at these forecasts is to place them into context against the industry itself. It's clear from the latest estimates that SM Energy's rate of growth is expected to accelerate meaningfully, with the forecast 29% annualised revenue growth to the end of 2021 noticeably faster than its historical growth of 3.4% p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 2.3% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect SM Energy to grow faster than the wider industry.
The Bottom Line
The most important thing here is that analysts reduced their loss per share estimates for this year, reflecting increased optimism around SM Energy's prospects. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. Seeing the dramatic upgrade to this year's forecasts, it might be time to take another look at SM Energy.
It's great to see the analysts upgrading their estimates, but the biggest highlight to us is that the business is expected to become profitable in the foreseeable future. You can learn more about these forecasts, for free on our platform here.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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