Market forces rained on the parade of Wynn Macau, Limited (HKG:1128) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business. Shares are up 6.6% to US$14.28 in the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.
Following the downgrade, the most recent consensus for Wynn Macau from its 19 analysts is for revenues of US$21b in 2020 which, if met, would be a substantial 428% increase on its sales over the past 12 months. Following this this downgrade, earnings are now expected to tip over into loss-making territory, with the analysts forecasting losses of US$0.55 per share in 2020. Previously, the analysts had been modelling revenues of US$24b and earnings per share (EPS) of US$0.068 in 2020. There looks to have been a major change in sentiment regarding Wynn Macau's prospects, with a substantial drop in revenues and the analysts now forecasting a loss instead of a profit.
The consensus price target was broadly unchanged at HK$16.31, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. 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. The most optimistic Wynn Macau analyst has a price target of HK$23.56 per share, while the most pessimistic values it at HK$10.50. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. The analysts are definitely expecting Wynn Macau'sgrowth to accelerate, with the forecast 4x growth ranking favourably alongside historical growth of 14% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 12% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Wynn Macau is expected to grow much faster than its industry.
The Bottom Line
The biggest low-light for us was that the forecasts for Wynn Macau dropped from profits to a loss this year. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Wynn Macau after the downgrade.
There might be good reason for analyst bearishness towards Wynn Macau, like its declining profit margins. For more information, you can click here to discover this and the 2 other concerns we've identified.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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