Yahoo Finance One Analyst Thinks The Hongkong and Shanghai Hotels, Limited's (HKG:45) Revenues Are Under Threat
The analyst covering The Hongkong and Shanghai Hotels, Limited (HKG:45) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue estimates were cut sharply as the analyst signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well. The stock price has risen 6.0% to HK$7.40 over the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.
Following the latest downgrade, the sole analyst covering Hongkong and Shanghai Hotels provided consensus estimates of HK$2.6b revenue in 2020, which would reflect a stressful 56% decline on its sales over the past 12 months. After this downgrade, the company is anticipated to report a loss of HK$0.65 in 2020, a sharp decline from a profit over the last year. However, before this estimates update, the consensus had been expecting revenues of HK$3.4b and HK$0.64 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analyst making a serious cut to their revenue forecasts while also making no real change to the loss per share numbers.
Check out our latest analysis for Hongkong and Shanghai Hotels
the analyst has cut their price target 9.9% to HK$7.75 per share, signalling that the declining revenue and ongoing losses are contributing to the lower valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Hongkong and Shanghai Hotels analyst has a price target of HK$8.20 per share, while the most pessimistic values it at HK$7.30. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 56% revenue decline a notable change from historical growth of 1.4% 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 13% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Hongkong and Shanghai Hotels is expected to lag the wider industry.
The Bottom Line
Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that Hongkong and Shanghai Hotels' revenues are expected to grow slower than the wider market. The consensus price target fell measurably, with the analyst seemingly not reassured by recent business developments, leading to a lower estimate of Hongkong and Shanghai Hotels' future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on Hongkong and Shanghai Hotels after today.
That said, this broker might have good reason to be negative on Hongkong and Shanghai Hotels, given its declining profit margins. For more information, you can click here to discover this and the 1 other risk we've identified.
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