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Forecast: Analysts Think Webjet Limited's (ASX:WEB) Business Prospects Have Improved Drastically

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Shareholders in Webjet Limited (ASX:WEB) may be thrilled to learn that the analysts have just delivered a major upgrade to their near-term forecasts. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with analysts modelling a real improvement in business performance. The stock price has risen 5.4% to AU$4.91 over the past week, suggesting investors are becoming more optimistic. Whether the upgrade is enough to drive the stock price higher is yet to be seen, however.

Following the upgrade, the most recent consensus for Webjet from its eight analysts is for revenues of AU$79m in 2021 which, if met, would be a meaningful 11% increase on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 63% to AU$0.39. Yet prior to the latest estimates, the analysts had been forecasting revenues of AU$67m and losses of AU$0.45 per share in 2021. We can see there's definitely been a change in sentiment in this update, with the analysts administering a sizeable upgrade to this year's revenue estimates, while at the same time reducing their loss estimates.

Check out our latest analysis for Webjet

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There was no major change to the consensus price target of AU$4.88, perhaps suggesting that the analysts remain concerned about ongoing losses despite the improved earnings and revenue outlook. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Webjet analyst has a price target of AU$7.02 per share, while the most pessimistic values it at AU$2.10. 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. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

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 Webjet's rate of growth is expected to accelerate meaningfully, with the forecast 23% annualised revenue growth to the end of 2021 noticeably faster than its historical growth of 8.3% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 16% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Webjet is expected to grow much faster than its industry.

The Bottom Line

The highlight for us was that the consensus reduced its estimated losses this year, perhaps suggesting Webjet is moving incrementally towards profitability. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. The lack of change in the price target is puzzling, but with a serious upgrade to this year's earnings expectations, it might be time to take another look at Webjet.

These earnings upgrades look like a sterling endorsement, but before diving in - you should know that we've spotted 3 potential warning signs with Webjet, including dilutive stock issuance over the past year. You can learn more, and discover the 2 other warning signs we've identified, for free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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