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China Southern Airlines Company Limited Just Missed Earnings And Its EPS Looked Sad - But Analysts Have Updated Their Models

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Simply Wall St
·4 min read
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Last week, you might have seen that China Southern Airlines Company Limited (HKG:1055) released its full-year result to the market. The early response was not positive, with shares down 2.9% to HK$3.32 in the past week. It looks like a pretty bad result, all things considered. Although revenues of CN¥154b were in line with analyst predictions, statutory earnings fell badly short, missing estimates by 37% to hit CN¥0.22 per share. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

View our latest analysis for China Southern Airlines

SEHK:1055 Past and Future Earnings April 2nd 2020
SEHK:1055 Past and Future Earnings April 2nd 2020

Following the recent earnings report, the consensus from 13 analysts covering China Southern Airlines is for revenues of CN¥106.6b in 2020, implying a stressful 31% decline in sales compared to the last 12 months. Earnings are expected to tip over into lossmaking territory, with the analysts forecasting statutory losses of -CN¥0.095 per share in 2020. Before this latest report, the consensus had been expecting revenues of CN¥133.6b and CN¥0.15 per share in losses. So there's been quite a change-up of views after the recent consensus updates, withthe analysts making a serious cut to their revenue forecasts while also reducing the estimated losses the business will incur.

The analysts have cut their price target 8.3% to CN¥4.56 per share, suggesting that the declining revenue was a more crucial indicator than the forecast reduction in losses. 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. The most optimistic China Southern Airlines analyst has a price target of CN¥6.13 per share, while the most pessimistic values it at CN¥3.29. This is a fairly broad spread of estimates, suggesting that 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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 31%, a significant reduction from annual growth of 7.8% 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 6.9% annually for the foreseeable future. It's pretty clear that China Southern Airlines' 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 reconfirmed their loss per share estimates for next year. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. Even so, earnings per share are more important to the intrinsic value of the business. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of China Southern Airlines' future valuation.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for China Southern Airlines going out to 2022, and you can see them free on our platform here.

Before you take the next step you should know about the 2 warning signs for China Southern Airlines that we have uncovered.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.