Yahoo Finance What You Need To Know About The Southern Energy Corp. (CVE:SOU) Analyst Downgrade Today
The analysts covering Southern Energy Corp. (CVE:SOU) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative. Bidders are definitely seeing a different story, with the stock price of CA$0.015 reflecting a 50% rise in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.
Following the downgrade, the latest consensus from Southern Energy's twin analysts is for revenues of CA$19m in 2020, which would reflect a sizeable 49% improvement in sales compared to the last 12 months. Before the latest update, the analysts were foreseeing CA$25m of revenue in 2020. The consensus view seems to have become more pessimistic on Southern Energy, noting the pretty serious reduction to revenue estimates in this update.
View our latest analysis for Southern Energy
Notably, the analysts have cut their price target 25% to CA$0.075, suggesting concerns around Southern Energy's valuation. 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 Southern Energy analyst has a price target of CA$0.12 per share, while the most pessimistic values it at CA$0.02. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. 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.
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. Next year brings more of the same, according to the analysts, with revenue forecast to grow 49%, in line with its 52% annual growth 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 revenues grow 0.8% per year. So it's pretty clear that Southern Energy is forecast to grow substantially faster than its industry.
The Bottom Line
The clear low-light was that analysts slashing their revenue forecasts for Southern Energy next year. They're also forecasting more rapid revenue growth than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Overall, given the drastic downgrade to next year's forecasts, we'd be feeling a little more wary of Southern Energy going forwards.
As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Southern Energy's financials, such as major dilution from new stock issuance in the past year. For more information, you can click here to discover this and the 2 other flags we've identified.
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.
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.
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