Analysts Are Much More Bearish On Far East Horizon Limited (HKG:3360) Than They Used To Be

Today is shaping up negative for Far East Horizon Limited (HKG:3360) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business. Surprisingly the share price has been buoyant, rising 16% to CN¥6.25 in the past 7 days. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.

Following the downgrade, the latest consensus from Far East Horizon's three analysts is for revenues of CN¥29b in 2020, which would reflect a solid 11% improvement in sales compared to the last 12 months. Per-share earnings are expected to rise 2.7% to CN¥1.17. Previously, the analysts had been modelling revenues of CN¥33b and earnings per share (EPS) of CN¥1.32 in 2020. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a considerable drop in earnings per share numbers as well.

View our latest analysis for Far East Horizon

The consensus price target fell 6.6% to US$1.16, with the weaker earnings outlook clearly leading analyst valuation estimates. 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 Far East Horizon analyst has a price target of US$1.35 per share, while the most pessimistic values it at US$0.97. This shows there is still some diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.

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. We would highlight that Far East Horizon's revenue growth is expected to slow, with forecast 11% increase next year well below the historical 22% p.a. growth over the last five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 11% next year. So it's pretty clear that, while Far East Horizon's revenue growth is expected to slow, it's expected to grow roughly in line with the 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. Lamentably, they also downgraded their sales forecasts, but the business is still expected to grow at roughly the same rate as the market itself. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Far East Horizon.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Far East Horizon analysts - going out to 2021, 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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