One thing we could say about the analysts on Callon Petroleum Company (NYSE:CPE) – they aren’t optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the downgrade, the most recent consensus for Callon Petroleum from its ten analysts is for revenues of US$1.1b in 2020 which, if met, would be a major 68% increase on its sales over the past 12 months. Per-share earnings are expected to accumulate 4.8% to US$0.25. Previously, the analysts had been modelling revenues of US$1.2b and earnings per share (EPS) of US$0.35 in 2020. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a large cut to earnings per share numbers as well.
Analysts made no major changes to their price target of US$1.39, suggesting the downgrades are not expected to have a long-term impact on Callon Petroleum’svaluation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. There are some variant perceptions on Callon Petroleum, with the most bullish analyst valuing it at US$8.00 and the most bearish at US$0.50 per share. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. 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.
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. It’s clear from the latest estimates that Callon Petroleum’s rate of growth is expected to accelerate meaningfully, with the forecast 68% revenue growth noticeably faster than its historical growth of 36% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue shrink 1.3% per year. It seems obvious that as part of the brighter growth outlook, Callon Petroleum is expected to grow faster than 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 Callon Petroleum. Sadly they also cut their revenue estimates, although at least the company is expected to perform a bit better than the wider market. We’re also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn’t blame investors for being more cautious on Callon Petroleum after the downgrade.
As you can see, the analysts clearly aren’t bullish, and there might be good reason for that. We’ve identified some potential issues with Callon Petroleum’s financials, such as its declining profit margins. Learn more, and discover the 4 other flags 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.