Analysts covering MEG Energy Corp. (TSE:MEG) sent a dose of negativity to shareholders today, by making a substantial revision to their statutory guidance for this year. Earnings estimates were cut sharply as analysts signaled a weaker outlook – perhaps a sign that investors should also temper their expectations. At C$20.96, the shares are up 8.6% in the past 7 days. We would be curious to see if the downgrade is enough to reverse investor sentiment on the company.
Following the downgrade, the current consensus of MEG Energy’s four analysts is for revenues of C$5.9 billion in 2022, which, if achieved, would reflect a significant 18% increase in sales over the course of 2022. of the last 12 months. Earnings per share are expected to rebound 94% to C$4.14. Prior to this latest update, analysts were forecasting revenue of C$6.7 billion and earnings per share (EPS) of C$4.46 in 2022. Indeed, we can see that analyst sentiment has noticeably decreased after the publication of the new consensus, with a measurable reduction. to revenue estimates and a slight decline in EPS estimates to boot.
Check out our latest analysis for MEG Energy
Analysts made no major changes to their price target of C$24.93, suggesting downside revisions should not have a long-term impact on MEG Energy’s valuation. The consensus price target is only an average of individual analyst targets, so it might be useful to see how wide the range of the underlying estimates is. There are a few variations in perception on MEG Energy, with the most bullish analyst pricing it at CA$34.00 and the most bearish at CA$19.00 per share. This is a fairly wide range of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the company.
Of course, another way to look at these predictions is to put them in context with the industry itself. Analysts certainly expect MEG Energy’s growth to accelerate, with projected annualized growth of 25% through the end of 2022 ranking favorably alongside historic growth of 11% per year over the past five years. . Compare that with other companies in the same industry, which are expected to grow revenue by 2.2% per year. It seems clear that while growth prospects are brighter than in the recent past, analysts also expect MEG Energy to grow faster than the industry as a whole.
The most important thing to remember is that analysts have cut their earnings per share estimates, expecting a sharp drop in trading conditions. Unfortunately, analysts have also lowered their earnings estimates, although our data indicates that earnings should perform better than the broader market. Often a downgrade can trigger a series of reductions, especially if an industry is in decline. So we wouldn’t be surprised if the market becomes much more cautious on MEG Energy after today.
As you can see, analysts are clearly not bullish, and there could be a good reason for that. We have identified some potential issues with MEG Energy’s finances, such as recent large insider selling. For more information, you can click here to find out about this and the other 4 issues we have identified.
You can also view our analysis of MEG Energy’s board and CEO compensation and experience, and whether any company insiders have bought stock.
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