Today is shaping up negative for Bonterra Energy Corp. (TSE:BNE) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
Following the latest downgrade, the three analysts covering Bonterra Energy provided consensus estimates of CA$112m revenue in 2020, which would reflect a substantial 41% decline on its sales over the past 12 months. After this downgrade, the company is anticipated to report a loss of CA$1.67 in 2020, a sharp decline from a profit over the last year. However, before this estimates update, the consensus had been expecting revenues of CA$136m and CA$1.64 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
There was no major change to the consensus price target of CA$1.36, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. 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. The most optimistic Bonterra Energy analyst has a price target of CA$3.00 per share, while the most pessimistic values it at CA$0.40. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. 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.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. Compare this against analyst estimates for companies in the wider industry, which suggest that revenues (in aggregate) are expected to decline 0.8% next year. So it's pretty clear that Bonterra Energy sales are expected to decline at a faster rate than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Bonterra Energy. Unfortunately they also downgraded their revenue estimates, and our aggregation of analyst estimates suggests that Bonterra Energy revenue is expected to perform worse than the wider market. Given the stark change in sentiment, we'd understand if investors became more cautious on Bonterra Energy after today.
There might be good reason for analyst bearishness towards Bonterra Energy, like the risk of cutting its dividend. Learn more, and discover the 2 other flags we've identified, for free on our platform here.
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