Things Look Grim For Vivo Energy plc (LON:VVO) After Today's Downgrade
The latest analyst coverage could presage a bad day for Vivo Energy plc (LON:VVO), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the latest downgrade, the current consensus, from the eight analysts covering Vivo Energy, is for revenues of US$7.7b in 2020, which would reflect a perceptible 7.3% reduction in Vivo Energy's sales over the past 12 months. Statutory earnings per share are presumed to rise 5.8% to US$0.11. Before this latest update, the analysts had been forecasting revenues of US$8.9b and earnings per share (EPS) of US$0.13 in 2020. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a real cut to earnings per share numbers as well.
See our latest analysis for Vivo Energy
Despite the cuts to forecast earnings, there was no real change to the US$1.95 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. 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 Vivo Energy at US$2.46 per share, while the most bearish prices it at US$1.54. 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.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Vivo Energy's past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with the forecast 7.3% revenue decline a notable change from historical growth of 11% over the last three years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 3.6% annually for the foreseeable future. It's pretty clear that Vivo Energy's revenues are expected to perform substantially worse than 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 Vivo Energy. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Vivo Energy.
Worse, Vivo Energy is labouring under a substantial debt burden, which - if today's forecasts prove accurate - the forecast downgrade could potentially exacerbate. To see more of our financial analysis, you can click through to our free platform to learn more about its balance sheet and specific concerns we've identified.
You can also see our analysis of Vivo Energy's Board and CEO remuneration and experience, and whether company insiders have been buying stock.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
