Market forces rained on the parade of TransAlta Corporation (TSE:TA) shareholders today, when the analysts downgraded their forecasts for this year. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well. At CA$12.74, shares are up 5.5% 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 current consensus, from the five analysts covering TransAlta, is for revenues of CA$2.1b in 2023, which would reflect a stressful 38% reduction in TransAlta's sales over the past 12 months. Before the latest update, the analysts were foreseeing CA$2.5b of revenue in 2023. The consensus view seems to have become more pessimistic on TransAlta, noting the substantial drop in revenue estimates in this update.

Check out our latest analysis for TransAlta

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the TransAlta's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 47% by the end of 2023. This indicates a significant reduction from annual growth of 6.0% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 3.5% annually for the foreseeable future. It's pretty clear that TransAlta's revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The clear low-light was that analysts slashing their revenue forecasts for TransAlta this year. They're also anticipating slower 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 TransAlta after today.

There might be good reason for analyst bearishness towards TransAlta, like recent substantial insider selling. Learn more, and discover the 2 other flags we've identified, for free on our platform here.

You can also see our analysis of TransAlta's Board and CEO remuneration and experience, and whether company insiders have been buying stock.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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