Last week saw the newest full-year earnings release from Huazhu Group Limited (NASDAQ:HTHT), an important milestone in the company's journey to build a stronger business. It looks like a credible result overall - although revenues of CN¥11b were in line with what the analysts predicted, Huazhu Group surprised by delivering a statutory profit of CN¥5.94 per share, a notable 20% above expectations. 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. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
After the latest results, the eleven analysts covering Huazhu Group are now predicting revenues of CN¥12.0b in 2020. If met, this would reflect a credible 6.7% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to crater 79% to CN¥1.32 in the same period. Before this earnings report, the analysts had been forecasting revenues of CN¥13.6b and earnings per share (EPS) of CN¥4.73 in 2020. It looks like sentiment has declined substantially in the aftermath of these results, with a real cut to revenue estimates and a pretty serious reduction to earnings per share numbers as well.
The analysts made no major changes to their price target of CN¥255, suggesting the downgrades are not expected to have a long-term impact on Huazhu Group's valuation. 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. Currently, the most bullish analyst values Huazhu Group at CN¥324 per share, while the most bearish prices it at CN¥191. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
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. We would highlight that Huazhu Group's revenue growth is expected to slow, with forecast 6.7% increase next year well below the historical 17%p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 8.8% per year. Factoring in the forecast slowdown in growth, it seems obvious that Huazhu Group is also expected to grow slower than other industry participants.
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. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. The consensus price target held steady at CN¥255, with the latest estimates not enough to have an impact on their price targets.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for Huazhu Group going out to 2023, and you can see them free on our platform here.
It is also worth noting that we have found 2 warning signs for Huazhu Group (1 is concerning!) that you need to take into consideration.
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