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One thing we could say about the analysts on Talos Energy Inc. (NYSE:TALO) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.
After the downgrade, the consensus from Talos Energy's six analysts is for revenues of US$728m in 2020, which would reflect a substantial 20% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to plummet 72% to US$1.67 in the same period. Previously, the analysts had been modelling revenues of US$839m and earnings per share (EPS) of US$1.68 in 2020. So there's been a clear change in analyst sentiment in the recent update, with the analysts making a substantial drop in revenues and reconfirming their earnings per share estimates.
It will come as no surprise then, that the consensus price target fell 5.7% to US$13.88 following these changes. 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 Talos Energy analyst has a price target of US$17.00 per share, while the most pessimistic values it at US$12.00. 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 Talos Energy's past performance and to peers in the same industry. One more thing stood out to us about these estimates, and it's the idea that Talos Energy'sdecline is expected to accelerate, with revenues forecast to fall 20% next year, topping off a historical decline of 0.5% a year over the past year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 8.6% per year. So while a broad number of companies are forecast to grow, unfortunately Talos Energy is expected to see its sales affected worse than other companies in the industry.
The Bottom Line
The most obvious conclusion from this consensus update is that there's been no major change in the business' prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Talos Energy's future valuation. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Talos Energy after today.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Talos Energy, including dilutive stock issuance over the past year. Learn more, and discover the 3 other concerns we've identified, for free on our platform here.
We also provide an overview of the Talos Energy Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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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