Earnings Release: Here's Why Analysts Cut Their Zhuzhou CRRC Times Electric Co., Ltd. (HKG:3898) Price Target To CN¥31.84
Investors in Zhuzhou CRRC Times Electric Co., Ltd. (HKG:3898) had a good week, as its shares rose 9.2% to close at HK$22.45 following the release of its full-year results. It was a credible result overall, with revenues of CN¥16b and statutory earnings per share of CN¥2.26 both in line with analyst estimates, showing that Zhuzhou CRRC Times Electric is executing in line with expectations. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Check out our latest analysis for Zhuzhou CRRC Times Electric
Taking into account the latest results, the most recent consensus for Zhuzhou CRRC Times Electric from 15 analysts is for revenues of CN¥17.9b in 2020 which, if met, would be a meaningful 9.6% increase on its sales over the past 12 months. Per-share earnings are expected to increase 8.8% to CN¥2.46. Yet prior to the latest earnings, the analysts had been anticipated revenues of CN¥18.2b and earnings per share (EPS) of CN¥2.56 in 2020. The analysts seem to have become a little more negative on the business after the latest results, given the small dip in their earnings per share numbers for next year.
It might be a surprise to learn that the consensus price target fell 5.5% to CN¥31.84, with the analysts clearly linking lower forecast earnings to the performance of the stock price. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Zhuzhou CRRC Times Electric analyst has a price target of CN¥41.91 per share, while the most pessimistic values it at CN¥21.90. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
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. It's clear from the latest estimates that Zhuzhou CRRC Times Electric's rate of growth is expected to accelerate meaningfully, with the forecast 9.6% revenue growth noticeably faster than its historical growth of 3.7%p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 5.0% next year. Factoring in the forecast acceleration in revenue, it's pretty clear that Zhuzhou CRRC Times Electric is expected to grow much faster than its industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Happily, there were no major changes to revenue forecasts, with the business still expected to grow faster than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
With that in mind, we wouldn't be too quick to come to a conclusion on Zhuzhou CRRC Times Electric. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Zhuzhou CRRC Times Electric analysts - going out to 2022, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Zhuzhou CRRC Times Electric , and understanding it should be part of your investment process.
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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