Celebrations may be in order for First Majestic Silver Corp. (TSE:FR) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. The consensus statutory numbers for both revenue and earnings per share (EPS) increased, with their view clearly much more bullish on the company's business prospects.
Following the upgrade, the current consensus from First Majestic Silver's dual analysts is for revenues of US$637m in 2021 which – if met – would reflect a substantial 68% increase on its sales over the past 12 months. Statutory earnings per share are anticipated to dive 25% to US$0.20 in the same period. Previously, the analysts had been modelling revenues of US$488m and earnings per share (EPS) of US$0.13 in 2021. So we can see there's been a pretty clear increase in analyst sentiment in recent times, with both revenues and earnings per share receiving a decent lift in the latest estimates.
Despite these upgrades, the analysts have not made any major changes to their price target of CA$21.00, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. 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. The most optimistic First Majestic Silver analyst has a price target of CA$25.00 per share, while the most pessimistic values it at CA$15.00. 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.
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. The analysts are definitely expecting First Majestic Silver's growth to accelerate, with the forecast 100% annualised growth to the end of 2021 ranking favourably alongside historical growth of 8.7% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 3.3% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect First Majestic Silver to grow faster 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. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. The lack of change in the price target is puzzling, but with a serious upgrade to this year's earnings expectations, it might be time to take another look at First Majestic Silver.
Using these estimates as a starting point, we've run a discounted cash flow calculation (DCF) on First Majestic Silver that suggests the company could be somewhat undervalued. For more information, you can click through to our platform to learn more about our valuation approach.
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.
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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