It’s been a sad week for Exchange Income Corporation (TSE:EIF), who’ve watched their investment drop 17% to CA$21.24 in the week since the company reported its quarterly result. Revenues fell 6.0% short of expectations, at CA$307m. Earnings correspondingly dipped, with Exchange Income reporting a statutory loss of CA$0.15 per share, whereas the analysts had previously modelled a profit in this period. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. Readers will be glad to know we’ve aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Exchange Income after the latest results.
Following the recent earnings report, the consensus from nine analysts covering Exchange Income is for revenues of CA$1.30b in 2020, implying a noticeable 3.7% decline in sales compared to the last 12 months. Statutory earnings per share are expected to nosedive 45% to CA$1.16 in the same period. Before this earnings report, the analysts had been forecasting revenues of CA$1.32b and earnings per share (EPS) of CA$1.65 in 2020. The analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a large cut to EPS estimates.
The consensus price target held steady at CA$38.22, with the analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. The consensus price target is just an average of individual analyst targets, so – it could be handy to see how wide the range of underlying estimates is. The most optimistic Exchange Income analyst has a price target of CA$49.00 per share, while the most pessimistic values it at CA$24.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 3.7%, a significant reduction from annual growth of 14% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 20% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – Exchange Income is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the…
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