One thing we could say about the analysts on Frontage Holdings Corporation (HKG:1521) – they aren’t optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
After the downgrade, the four analysts covering Frontage Holdings are now predicting revenues of US$125m in 2020. If met, this would reflect a substantial 24% improvement in sales compared to the last 12 months. Per-share earnings are expected to leap 24% to US$0.013. Prior to this update, the analysts had been forecasting revenues of US$146m and earnings per share (EPS) of US$0.014 in 2020. Indeed, we can see that analyst sentiment has declined measurably after the new consensus came out, with a substantial drop in revenue estimates and a small dip in EPS estimates to boot.
The consensus price target fell 6.3% to US$0.66, 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. There are some variant perceptions on Frontage Holdings, with the most bullish analyst valuing it at US$0.82 and the most bearish at US$0.55 per share. 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.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We can infer from the latest estimates that forecasts expect a continuation of Frontage Holdings’historical trends, as next year’s 24% revenue growth is roughly in line with 21% annual revenue growth over the past three years. Compare this with the wider industry, which analyst estimates (in aggregate) suggest will see revenues grow 22% next year. It’s clear that while Frontage Holdings’ revenue growth is expected to continue on its current trajectory, it’s only expected to grow in line with the industry itself.
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 Frontage Holdings. There was also a drop in their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Frontage Holdings’ future valuation. Overall, given the drastic downgrade to this year’s forecasts, we’d be feeling a little more wary of Frontage Holdings going forwards.
There might be good reason for analyst bearishness towards Frontage Holdings, like concerns around earnings quality. Learn more, and discover the 1 other warning sign we’ve identified, 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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