Asbury Automotive Group, Inc. (NYSE:ABG) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with the analysts modelling a real improvement in business performance. The market may be pricing in some blue sky too, with the share price gaining 20% to US$92.00 in the last 7 days. Could this upgrade be enough to drive the stock even higher?
Following the latest upgrade, the eight analysts covering Asbury Automotive Group provided consensus estimates of US$6.8b revenue in 2020, which would reflect a small 4.5% decline on its sales over the past 12 months. Statutory earnings per share are supposed to decrease 9.1% to US$7.77 in the same period. Before this latest update, the analysts had been forecasting revenues of US$6.2b and earnings per share (EPS) of US$5.53 in 2020. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.
It will come as no surprise to learn that the analysts have increased their price target for Asbury Automotive Group 24% to US$100 on the back of these upgrades. 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. The most optimistic Asbury Automotive Group analyst has a price target of US$128 per share, while the most pessimistic values it at US$67.00. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for 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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 4.5%, a significant reduction from annual growth of 2.6% 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 9.9% annually for the foreseeable future. It's pretty clear that Asbury Automotive Group's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow slower than the wider market. With a serious upgrade to expectations and a rising price target, it might be time to take another look at Asbury Automotive Group.
These earnings upgrades look like a sterling endorsement, but before diving in - you should know that we've spotted 3 potential risks with Asbury Automotive Group, including recent substantial insider selling. You can learn more, and discover the 2 other risks we've identified, for free on our platform here.
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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. 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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