Shareholders of China Shenhua Energy Company Limited (HKG:1088) will be pleased this week, given that the stock price is up 12% to HK$14.76 following its latest annual results. Revenues of CN¥242b were in line with forecasts, although statutory earnings per share (EPS) came in below expectations at CN¥2.10, missing estimates by 6.1%. 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. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following the recent earnings report, the consensus from 16 analysts covering China Shenhua Energy is for revenues of CN¥226.4b in 2020, implying a discernible 6.4% decline in sales compared to the last 12 months. Statutory earnings per share are expected to reduce 6.3% to CN¥1.96 in the same period. Before this earnings report, the analysts had been forecasting revenues of CN¥227.5b and earnings per share (EPS) of CN¥2.06 in 2020. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but the analysts did make a small dip in their earnings per share forecasts.
The consensus price target held steady at CN¥16.82, with the analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. 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 Shenhua Energy analyst has a price target of CN¥21.15 per share, while the most pessimistic values it at CN¥11.99. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
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 6.4% revenue decline a notable change from historical growth of 5.7% 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 0.8% annually for the foreseeable future. It's pretty clear that China Shenhua Energy's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that China Shenhua Energy's revenues are expected to perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At Simply Wall St, we have a full range of analyst estimates for China Shenhua Energy going out to 2023, and you can see them free on our platform here..
Don't forget that there may still be risks. For instance, we've identified 2 warning signs for China Shenhua Energy (1 is concerning) you should be aware of.
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