ARC Resources Ltd. (TSE:ARX) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's statutory forecasts. The revenue forecast for this year has experienced a facelift, with the analysts now much more optimistic on its sales pipeline. Investor sentiment seems to be improving too, with the share price up 5.0% to CA$5.69 over the past 7 days. It will be interesting to see if this latest upgrade is enough to kickstart further buying interest in the stock.
After the upgrade, the consensus from ARC Resources' four analysts is for revenues of CA$1.1b in 2020, which would reflect an uncomfortable 12% decline in sales compared to the last year of performance. Losses are presumed to reduce, shrinking 11% from last year to CA$1.70. Yet before this consensus update, the analysts had been forecasting revenues of CA$899m and losses of CA$1.81 per share in 2020. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a sizeable increase to their revenue forecasts while also reducing the estimated loss as the business grows towards breakeven.
The consensus price target rose 6.4% to CA$8.03, with the analysts encouraged by the higher revenue and lower forecast losses for this year. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on ARC Resources, with the most bullish analyst valuing it at CA$10.00 and the most bearish at CA$5.50 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that sales are expected to reverse, with the forecast 12% revenue decline a notable change from historical growth of 3.3% 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 7.0% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - ARC Resources is expected to lag 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 ARC Resources' prospects. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow slower than the wider market. There was also a nice increase in the price target, with analysts apparently feeling that the intrinsic value of the business is improving. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at ARC Resources.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for ARC Resources going out to 2021, and you can see them 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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