One thing we could say about the analysts on Entercom Communications Corp. (NYSE:ETM) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.
After the downgrade, the consensus from Entercom Communications' four analysts is for revenues of US$1.2b in 2020, which would reflect a substantial 21% decline in sales compared to the last year of performance. The losses are expected to disappear over the next year or so, with forecasts for a profit of US$0.24 per share this year. Prior to this update, the analysts had been forecasting revenues of US$1.4b and earnings per share (EPS) of US$0.49 in 2020. Indeed, we can see that the analysts are a lot more bearish about Entercom Communications' prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
The consensus price target fell 50% to US$1.88, with the weaker earnings outlook clearly leading analyst valuation estimates. 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. There are some variant perceptions on Entercom Communications, with the most bullish analyst valuing it at US$3.50 and the most bearish at US$1.00 per share. 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. 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.
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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 21%, a significant reduction from annual growth of 35% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 3.3% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Entercom Communications is expected to lag the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Entercom Communications. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Entercom Communications' revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Entercom Communications.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Entercom Communications analysts - going out to 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.
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