The analysts covering Fathom Digital Manufacturing Corporation (NYSE:FATH) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. At US$0.77, shares are up 9.0% in the past 7 days. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.
Following the latest downgrade, the five analysts covering Fathom Digital Manufacturing provided consensus estimates of US$145m revenue in 2023, which would reflect an uncomfortable 9.7% decline on its sales over the past 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 99% to US$0.17. However, before this estimates update, the consensus had been expecting revenues of US$170m and US$0.052 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
See our latest analysis for Fathom Digital Manufacturing
The consensus price target fell 75% to US$0.93, implicitly signalling that lower earnings per share are a leading indicator for Fathom Digital Manufacturing's 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. The most optimistic Fathom Digital Manufacturing analyst has a price target of US$3.50 per share, while the most pessimistic values it at US$0.70. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
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. We would highlight that sales are expected to reverse, with a forecast 9.7% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 46% over the last three years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 5.0% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Fathom Digital Manufacturing is expected to lag the wider industry.