The full-year results for Huazhu Group Limited (NASDAQ:HTHT) were released last week, making it a good time to revisit its performance. 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. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Huazhu Group after the latest results.
After the latest results, the twelve analysts covering Huazhu Group are now predicting revenues of CN¥11.6b in 2020. If met, this would reflect a satisfactory 3.8% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to tumble 77% to CN¥1.41 in the same period. In the lead-up to this report, the analysts had been modelling revenues of CN¥11.8b and earnings per share (EPS) of CN¥1.72 in 2020. So there's definitely been a decline in sentiment after the latest results, noting the substantial drop in new EPS forecasts.
The consensus price target held steady at CN¥250, with the analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Huazhu Group, with the most bullish analyst valuing it at CN¥308 and the most bearish at CN¥183 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Huazhu Group shareholders.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that Huazhu Group's revenue growth is expected to slow, with forecast 3.8% increase next year well below the historical 17%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 9.9% next 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 plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. The consensus price target held steady at CN¥250, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn't be too quick to come to a conclusion on Huazhu Group. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Huazhu Group analysts - going out to 2023, 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 Huazhu Group (1 is a bit unpleasant!) that we have uncovered.
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