The latest analyst coverage could presage a bad day for CK Hutchison Holdings Limited (HKG:1), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative. Surprisingly the share price has been buoyant, rising 11% to HK$52.30 in the past 7 days. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.
Following the downgrade, the most recent consensus for CK Hutchison Holdings from its eight analysts is for revenues of HK$377b in 2020 which, if met, would be a sizeable 26% increase on its sales over the past 12 months. Statutory earnings per share are anticipated to reduce 8.1% to HK$9.50 in the same period. Prior to this update, the analysts had been forecasting revenues of HK$442b and earnings per share (EPS) of HK$10.42 in 2020. Indeed, we can see that analyst sentiment has declined measurably after the new consensus came out, with a substantial drop in revenue estimates and a small dip in EPS estimates to boot.
It'll come as no surprise then, to learn that the analysts have cut their price target 15% to HK$78.37. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values CK Hutchison Holdings at HK$91.00 per share, while the most bearish prices it at HK$63.00. 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 CK Hutchison Holdings shareholders.
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. Next year brings more of the same, according to the analysts, with revenue forecast to grow 26%, in line with its 23% annual growth over the past five years. Compare this with the wider industry, which analyst estimates (in aggregate) suggest will see revenues grow 8.0% next year. So it's pretty clear that CK Hutchison Holdings is forecast to grow substantially faster than its industry.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of CK Hutchison Holdings' future valuation. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on CK Hutchison Holdings after today.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for CK Hutchison Holdings going out to 2022, and you can see them free on our platform here.
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