Hengan International Group Company Limited (HKG:1044) shareholders are probably feeling a little disappointed, since its shares fell 3.1% to HK$55.30 in the week after its latest full-year results. Results overall were respectable, with statutory earnings of CN¥3.20 per share roughly in line with what the analysts had forecast. Revenues of CN¥22b came in 3.1% ahead of analyst predictions. This is an important time for investors, as they can track a company’s performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
After the latest results, the 19 analysts covering Hengan International Group are now predicting revenues of CN¥24.1b in 2020. If met, this would reflect an okay 7.1% improvement in sales compared to the last 12 months. Per-share earnings are expected to grow 12% to CN¥3.68. Before this earnings report, the analysts had been forecasting revenues of CN¥23.8b and earnings per share (EPS) of CN¥3.59 in 2020. The analysts seems to have become more bullish on the business, judging by their new earnings per share estimates.
The consensus price target was unchanged at HK$67.87, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. 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 Hengan International Group analyst has a price target of HK$88.00 per share, while the most pessimistic values it at HK$49.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Hengan International Group shareholders.
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. It’s clear from the latest estimates that Hengan International Group’s rate of growth is expected to accelerate meaningfully, with the forecast 7.1% revenue growth noticeably faster than its historical growth of 2.7%p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 6.6% next year. Hengan International Group is expected to grow at about the same rate as its industry, so it’s not clear that we can draw any conclusions from its growth relative to competitors.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Hengan International Group following these results. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn’t be too quick to come to a conclusion on Hengan International Group. Long-term earnings power is much more important than next year’s profits. We have forecasts for Hengan International Group going out to 2022, and you can see them free on our platform here.
Before you take the next step you should know about the 1 warning sign for Hengan International Group that we have uncovered.
If you spot an error that warrants correction, please contact the editor at email@example.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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.