Time To Worry? Analysts Are Downgrading Their CNOOC Limited (HKG:883) Outlook

The analysts covering CNOOC Limited (HKG:883) 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) forecasts went under the knife, suggesting the analysts have soured majorly on the business. Bidders are definitely seeing a different story, with the stock price of CN¥8.13 reflecting a 14% rise in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

After the downgrade, the consensus from CNOOC's 15 analysts is for revenues of CN¥154b in 2020, which would reflect a concerning 34% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to tumble 76% to CN¥0.33 in the same period. Previously, the analysts had been modelling revenues of CN¥183b and earnings per share (EPS) of CN¥0.71 in 2020. Indeed, we can see that the analysts are a lot more bearish about CNOOC's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

Check out our latest analysis for CNOOC

The consensus price target fell 15% to CN¥8.76, with the weaker earnings outlook clearly leading analyst valuation estimates. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on CNOOC, with the most bullish analyst valuing it at CN¥14.33 and the most bearish at CN¥6.14 per share. 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.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the CNOOC's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 34%, a significant reduction from annual growth of 1.9% 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 0.8% annually for the foreseeable future. It's pretty clear that CNOOC's revenues are expected to perform substantially worse than the wider 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. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that CNOOC's revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of CNOOC.

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 CNOOC going out to 2024, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies 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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