Celebrations may be in order for Ovintiv Inc. (TSE:OVV) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with the analysts modelling a real improvement in business performance.
After the upgrade, the consensus from Ovintiv's eleven analysts is for revenues of US$6.7b in 2020, which would reflect a substantial 21% decline in sales compared to the last year of performance. Statutory earnings per share are supposed to tumble 69% to US$1.04 in the same period. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$5.5b and losses of US$0.71 per share in 2020. So we can see that this has sparked a pretty clear upgrade to expectations, with higher revenues anticipated to lead to profit sooner than previously forecast.
Despite these upgrades, the consensus price target fell 29% to US$7.23, perhaps signalling that the uplift in performance is not expected to last. 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 Ovintiv at US$37.79 per share, while the most bearish prices it at US$2.87. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. 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.
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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 21%, a significant reduction from annual growth of 8.7% 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 5.5% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Ovintiv is expected to lag the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that the consensus now expects Ovintiv to become profitable this year. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow slower than the wider market. The declining price target is a puzzle, but still - with a serious upgrade to this year's expectations, it might be time to take another look at Ovintiv.
These earnings upgrades look like a sterling endorsement, but before diving in - you should know that we've spotted 5 potential risks with Ovintiv, including a weak balance sheet. For more information, you can click through to our platform to learn more about this and the 4 other risks we've identified .
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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