It's been a sad week for McEwen Mining Inc. (NYSE:MUX), who've watched their investment drop 13% to US$0.61 in the week since the company reported its annual result. It was a pretty bad result overall; while revenues were in line with expectations at US$117m, statutory losses exploded to US$0.17 per share. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following last week's earnings report, McEwen Mining's four analysts are forecasting 2020 revenues to be US$118.0m, approximately in line with the last 12 months. Losses are predicted to fall substantially, shrinking 74% to US$0.043. Before this latest report, the consensus had been expecting revenues of US$163.6m and US$0.006 per share in losses. So there's been quite a change-up of views after the recent consensus updates, withthe analysts making a serious cut to their revenue outlook while also expecting losses per share to increase.
The average price target fell 13% to US$2.49, implicitly signalling that lower earnings per share are a leading indicator for McEwen Mining's valuation. 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 McEwen Mining analyst has a price target of US$4.40 per share, while the most pessimistic values it at US$1.70. With such a wide range in price targets, analysts are almost certainly betting on widely divergent outcomes in the underlying business. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that McEwen Mining's revenue growth will slow down substantially, with revenues next year expected to grow 0.8%, compared to a historical growth rate of 17% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 3.6% next year. Factoring in the forecast slowdown in growth, it seems obvious that McEwen Mining is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing to take away is that the analysts increased their loss per share estimates for next year. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple McEwen Mining analysts - going out to 2021, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with McEwen Mining (at least 1 which is significant) , and understanding them should be part of your investment process.
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