Cenovus Energy Inc. (TSE:CVE) shareholders will have a reason to smile today, with the analysts making substantial upgrades to next year's forecasts. The consensus estimated revenue numbers rose, with their view now clearly much more bullish on the company's business prospects.

After this upgrade, Cenovus Energy's six analysts are now forecasting revenues of CA$54b in 2022. This would be a major 49% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to soar 500% to CA$2.43. Previously, the analysts had been modelling revenues of CA$46b and earnings per share (EPS) of CA$2.33 in 2022. The most recent forecasts are noticeably more optimistic, with a nice increase in revenue estimates and a lift to earnings per share as well.

See our latest analysis for Cenovus Energy

Although the analysts have upgraded their earnings estimates, there was no change to the consensus price target of CA$21.50, suggesting that the forecast performance does not have a long term impact on the company'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 Cenovus Energy analyst has a price target of CA$25.00 per share, while the most pessimistic values it at CA$17.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Cenovus Energy shareholders.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's clear from the latest estimates that Cenovus Energy's rate of growth is expected to accelerate meaningfully, with the forecast 38% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 12% p.a. 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 8.0% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Cenovus Energy is expected to grow much faster than its industry.

The Bottom Line

The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for next year, expecting improving business conditions. Fortunately, analysts also upgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider market. Seeing the dramatic upgrade to next year's forecasts, it might be time to take another look at Cenovus Energy.

Using these estimates as a starting point, we've run a discounted cash flow calculation (DCF) on Cenovus Energy that suggests the company could be somewhat undervalued. You can learn more about our valuation methodology on our platform here.

Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.

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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.