Today is shaping up negative for Favelle Favco Berhad (KLSE:FAVCO) shareholders, with the covering analyst delivering a substantial negative revision to this year's forecasts. 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 solitary analyst covering Favelle Favco Berhad provided consensus estimates of RM502m revenue in 2022, which would reflect an uncomfortable 15% decline on its sales over the past 12 months. Statutory earnings per share are anticipated to nosedive 72% to RM0.042 in the same period. Previously, the analyst had been modelling revenues of RM601m and earnings per share (EPS) of RM0.25 in 2022. Indeed, we can see that the analyst is a lot more bearish about Favelle Favco Berhad's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.
The consensus price target fell 10% to RM1.75, with the weaker earnings outlook clearly leading analyst valuation 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 annualised revenue decline of 15% by the end of 2022. This indicates a significant reduction from annual growth of 2.3% 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 13% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Favelle Favco Berhad is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analyst cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that Favelle Favco Berhad's revenues are expected to grow slower 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. Given the stark change in sentiment, we'd understand if investors became more cautious on Favelle Favco Berhad after today.
That said, the covering analyst might have good reason to be negative on Favelle Favco Berhad, given its declining profit margins. Learn more, and discover the 3 other warning signs we've identified, for 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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