Shareholders in Farmers & Merchants Bancorp, Inc. (NASDAQ:FMAO) may be thrilled to learn that the analysts have just delivered a major upgrade to their near-term forecasts. The consensus estimated revenue numbers rose, with their view now clearly much more bullish on the company's business prospects.
After this upgrade, Farmers & Merchants Bancorp's two analysts are now forecasting revenues of US$93m in 2022. This would be a satisfactory 4.9% improvement in sales compared to the last 12 months. Per-share earnings are expected to leap 25% to US$2.55. Previously, the analysts had been modelling revenues of US$84m and earnings per share (EPS) of US$2.51 in 2022. It seems analyst sentiment has certainly become more bullish on revenues, even though they haven't changed their view on earnings per share.
Even though revenue forecasts increased, the consensus price target fell 6.3% to US$37.50, perhaps suggesting that the analysts have become more pessimistic about the lack of earnings growth. 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. There are some variant perceptions on Farmers & Merchants Bancorp, with the most bullish analyst valuing it at US$39.00 and the most bearish at US$36.00 per share. Still, with such a tight range of estimates, it suggests the analysts have a pretty good idea of what they think the company is worth.
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. It's pretty clear that there is an expectation that Farmers & Merchants Bancorp's revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 6.6% growth on an annualised basis. This is compared to a historical growth rate of 14% over the past five years. Compare this to the 639 other companies in this industry with analyst coverage, which are forecast to grow their revenue at 7.5% per year. Factoring in the forecast slowdown in growth, it looks like Farmers & Merchants Bancorp is forecast to grow at about the same rate as the wider industry.
The Bottom Line
The most important thing to take away is that there's been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. They also upgraded their revenue forecasts, although the latest estimates suggest that Farmers & Merchants Bancorp will grow in line with the overall market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Farmers & Merchants Bancorp.
Using these estimates as a starting point, we've run a discounted cash flow calculation (DCF) on Farmers & Merchants Bancorp 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.
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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.