One thing we could say about the analysts on MGM China Holdings Limited (HKG:2282) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.
Following the latest downgrade, the 16 analysts covering MGM China Holdings provided consensus estimates of HK$7.8b revenue in 2022, which would reflect a discernible 2.0% decline on its sales over the past 12 months. Losses are forecast to narrow 8.0% to HK$1.09 per share. However, before this estimates update, the consensus had been expecting revenues of HK$9.1b and HK$0.98 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
View our latest analysis for MGM China HoldingsSEHK:2282 Earnings and Revenue Growth August 8th 2022
There was no major change to the consensus price target of HK$5.49, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. 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 MGM China Holdings analyst has a price target of HK$9.10 per share, while the most pessimistic values it at HK$3.60. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the MGM China Holdings' past performance and to peers in the same industry. We would also point out that the forecast 4.0% annualised revenue decline to the end of 2022 is better than the historical trend, which saw revenues shrink 16% annually over the past five years Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 25% annually. So it's pretty clear that, while it does have declining revenues, the analysts also expect MGM China Holdings to suffer worse than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at MGM China Holdings. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower 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 MGM China Holdings after the downgrade.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple MGM China Holdings analysts - going out to 2024, and you can see them free on our platform here.
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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.