As you might know, China Southern Airlines Company Limited (HKG:1055) last week released its latest quarterly, and things did not turn out so great for shareholders. It looks like quite a negative result overall, with both revenues and earnings falling well short of analyst predictions. Revenues of CN¥21b missed by 11%, and statutory earnings per share of CN¥0.22 fell short of forecasts by 37%. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the current consensus, from the 17 analysts covering China Southern Airlines, is for revenues of CN¥108.7b in 2020, which would reflect a concerning 21% reduction in China Southern Airlines' sales over the past 12 months. Losses are forecast to balloon 65% to CN¥0.70 per share. Before this earnings announcement, the analysts had been modelling revenues of CN¥108.4b and losses of CN¥0.23 per share in 2020. So it's pretty clear the analysts have mixed opinions on China Southern Airlines even after this update; although they reconfirmed their revenue numbers, it came at the cost of a per-share losses.
As a result, there was no major change to the consensus price target of CN¥4.47, with the analysts implicitly confirming that the business looks to be performing in line with expectations, despite higher forecast losses. 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. Currently, the most bullish analyst values China Southern Airlines at CN¥6.19 per share, while the most bearish prices it at CN¥3.30. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 21%, a significant reduction from annual growth of 7.4% 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 12% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - China Southern Airlines is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analysts increased their loss per share estimates for next year. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that China Southern Airlines' 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.
With that in mind, we wouldn't be too quick to come to a conclusion on China Southern Airlines. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for China Southern Airlines going out to 2022, and you can see them free on our platform here..
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with China Southern Airlines (at least 1 which is concerning) , and understanding them should be part of your investment process.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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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