Market forces rained on the parade of Burford Capital Limited (LON:BUR) shareholders today, when the analysts downgraded their forecasts for this year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.
After this downgrade, Burford Capital's four analysts are now forecasting revenues of US$291m in 2022. This would be a major 67% improvement in sales compared to the last 12 months. Before the latest update, the analysts were foreseeing US$420m of revenue in 2022. The consensus view seems to have become more pessimistic on Burford Capital, noting the sizeable cut to revenue estimates in this update.
There was no particular change to the consensus price target of US$13.31, with Burford Capital's latest outlook seemingly not enough to result in a change of valuation. 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. Currently, the most bullish analyst values Burford Capital at US$13.54 per share, while the most bearish prices it at US$6.85. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. For example, we noticed that Burford Capital's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 179% growth to the end of 2022 on an annualised basis. That is well above its historical decline of 12% a year over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 12% annually. Not only are Burford Capital's revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.
The Bottom Line
The clear low-light was that analysts slashing their revenue forecasts for Burford Capital this year. They're also forecasting more rapid revenue growth than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Burford Capital after today.
Hungry for more information? At least one of Burford Capital's four analysts has provided estimates out to 2024, which can be seen for free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies 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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