The latest analyst coverage could presage a bad day for Sunstone Hotel Investors, Inc. (NYSE:SHO), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. 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 seven analysts covering Sunstone Hotel Investors provided consensus estimates of US$429m revenue in 2020, which would reflect a substantial 59% decline on its sales over the past 12 months. Prior to the latest estimates, the analysts were forecasting revenues of US$483m in 2020. It looks like forecasts have become a fair bit less optimistic on Sunstone Hotel Investors, given the substantial drop in revenue estimates.
There was no particular change to the consensus price target of US$9.17, with Sunstone Hotel Investors' latest outlook seemingly not enough to result in a change of valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values Sunstone Hotel Investors at US$12.50 per share, while the most bearish prices it at US$6.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. One more thing stood out to us about these estimates, and it's the idea that Sunstone Hotel Investors'decline is expected to accelerate, with revenues forecast to fall 59% next year, topping off a historical decline of 2.3% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 5.3% per year. So it's pretty clear that, while it does have declining revenues, the analysts also expect Sunstone Hotel Investors to suffer worse than the wider industry.
The Bottom Line
The clear low-light was that analysts slashing their revenue forecasts for Sunstone Hotel Investors this year. They're also anticipating slower revenue growth than the wider market. 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 Sunstone Hotel Investors after today.
Unanswered questions? We have estimates for Sunstone Hotel Investors from its seven analysts out until 2022, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks 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.
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