Today is shaping up negative for Midland Holdings Limited (HKG:1200) 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.
Following the downgrade, the consensus from twin analysts covering Midland Holdings is for revenues of HK$4.2b in 2020, implying a not inconsiderable 14% decline in sales compared to the last 12 months. Losses are presumed to reduce, shrinking 12% from last year to HK$0.084. Prior to this update, the analysts had been forecasting revenues of HK$5.5b and earnings per share (EPS) of HK$0.24 in 2020. There looks to have been a major change in sentiment regarding Midland Holdings’ prospects, with a pretty serious reduction to revenues and the analysts now forecasting a loss instead of a profit.
The consensus price target fell 17% to HK$1.36, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. There are some variant perceptions on Midland Holdings, with the most bullish analyst valuing it at HK$1.70 and the most bearish at HK$1.01 per share. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Midland Holdings’ past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 14%, a significant reduction from annual growth of 5.2% 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 15% annually for the foreseeable future. It’s pretty clear that Midland Holdings’ revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that analysts are expecting Midland Holdings to become unprofitable this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales 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 Midland Holdings.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At least one analyst has provided forecasts out to 2022, which can be seen for 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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