Things Look Grim For China Hongqiao Group Limited (HKG:1378) After Today's Downgrade
Market forces rained on the parade of China Hongqiao Group Limited (HKG:1378) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the downgrade, the consensus from four analysts covering China Hongqiao Group is for revenues of CN¥79b in 2020, implying a small 6.1% decline in sales compared to the last 12 months. Statutory earnings per share are anticipated to plunge 26% to CN¥0.53 in the same period. Previously, the analysts had been modelling revenues of CN¥88b and earnings per share (EPS) of CN¥0.62 in 2020. Indeed, we can see that the analysts are a lot more bearish about China Hongqiao Group's prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
See our latest analysis for China Hongqiao Group
It'll come as no surprise then, to learn that the analysts have cut their price target 7.5% to CN¥4.90. 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 China Hongqiao Group analyst has a price target of CN¥6.91 per share, while the most pessimistic values it at CN¥3.20. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 6.1% revenue decline a notable change from historical growth of 19% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 4.1% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - China Hongqiao Group is expected to lag the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for China Hongqiao Group. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for China Hongqiao Group going out to 2022, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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