The analysts covering Longfor Group Holdings Limited (HKG:960) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the downgrade, the consensus from 25 analysts covering Longfor Group Holdings is for revenues of CN¥162b in 2024, implying a considerable 10% decline in sales compared to the last 12 months. Statutory earnings per share are supposed to dip 8.4% to CN¥1.74 in the same period. Previously, the analysts had been modelling revenues of CN¥188b and earnings per share (EPS) of CN¥2.59 in 2024. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a large cut to earnings per share numbers as well.
Analysts made no major changes to their price target of CN¥15.03, suggesting the downgrades are not expected to have a long-term impact on Longfor Group Holdings' 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. Currently, the most bullish analyst values Longfor Group Holdings at CN¥29.57 per share, while the most bearish prices it at CN¥8.83. 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.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 10% by the end of 2024. This indicates a significant reduction from annual growth of 12% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 6.6% annually for the foreseeable future. It's pretty clear that Longfor Group Holdings' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Longfor Group Holdings. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Longfor Group Holdings' revenues are expected to grow slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Longfor Group Holdings.
That said, the analysts might have good reason to be negative on Longfor Group Holdings, given dilutive stock issuance over the past year. For more information, you can click here to discover this and the 3 other flags 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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