Shareholders of C3.ai, Inc. (NYSE:AI) will be pleased this week, given that the stock price is up 11% to US$68.26 following its latest full-year results. The statutory results were mixed overall, with revenues of US$183m in line with analyst forecasts, but losses of US$0.90 per share, some 2.4% larger than the analysts were predicting. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Following the latest results, C3.ai’s ten analysts are now forecasting revenues of US$245.4m in 2022. This would be a substantial 34% improvement in sales compared to the last 12 months. Per-share losses are expected to explode, reaching US$1.36 per share. Yet prior to the latest earnings, the analysts had been forecasting revenues of US$239.9m and losses of US$1.46 per share in 2022. It looks like there’s been a modest increase in sentiment in the recent updates, with the analysts becoming a bit more optimistic in their predictions for both revenues and losses per share.
The consensus price target fell 24%, to US$99.44, suggesting that the analysts remain pessimistic on the company, despite the improved earnings and revenue outlook. 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. There are some variant perceptions on C3.ai, with the most bullish analyst valuing it at US$167 and the most bearish at US$62.00 per share. We would probably assign less value to the analyst forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn’t rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on 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. It’s clear from the latest estimates that C3.ai’s rate of growth is expected to accelerate meaningfully, with the forecast 34% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 17% over the past year. Compare this with other companies in the same industry, which are forecast to grow their revenue 13% annually. Factoring in the forecast acceleration in revenue, it’s pretty clear that C3.ai is expected to grow much faster than its industry.
The Bottom Line
The most obvious conclusion is that the analysts made no changes to their forecasts for a loss next year. Pleasantly, they also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow faster than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates – from multiple C3.ai analysts – going out to 2026, and you can see them free on our platform here.
You should always think about risks though. Case in point, we’ve spotted 4 warning signs for C3.ai you should be aware of, and 1 of them is a bit unpleasant.
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