Market forces rained on the parade of Henderson Land Development Company Limited (HKG:12) shareholders today, when the analysts downgraded their forecasts for this year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.
Following the downgrade, the most recent consensus for Henderson Land Development from its 13 analysts is for revenues of HK$25b in 2020 which, if met, would be a credible 2.6% increase on its sales over the past 12 months. Statutory earnings per share are anticipated to decrease 8.9% to HK$3.20 in the same period. Prior to this update, the analysts had been forecasting revenues of HK$28b and earnings per share (EPS) of HK$3.55 in 2020. It looks like analyst sentiment has fallen somewhat in this update, with a substantial drop in revenue estimates and a minor downgrade to earnings per share numbers as well.
It'll come as no surprise then, to learn that the analysts have cut their price target 15% to HK$38.76. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Henderson Land Development, with the most bullish analyst valuing it at HK$48.32 and the most bearish at HK$23.30 per share. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. For example, we noticed that Henderson Land Development's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow 2.6%, well above its historical decline of 2.0% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 15% per year. Although Henderson Land Development's revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the wider industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Henderson Land Development's future valuation. 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 Henderson Land Development after today.
As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Henderson Land Development's financials, such as its declining profit margins. Learn more, and discover the 3 other flags we've identified, for free on our platform here.
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