Downgrade: Here's How Analysts See Melco International Development Limited (HKG:200) Performing In The Near Term

The latest analyst coverage could presage a bad day for Melco International Development Limited (HKG:200), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.

After the downgrade, the seven analysts covering Melco International Development are now predicting revenues of HK$23b in 2021. If met, this would reflect a major 68% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 45% to HK$2.33. Yet prior to the latest estimates, the analysts had been forecasting revenues of HK$26b and losses of HK$1.86 per share in 2021. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

View our latest analysis for Melco International Development

The consensus price target fell 6.5% to HK$16.55, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Melco International Development analyst has a price target of HK$20.40 per share, while the most pessimistic values it at HK$11.60. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

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. The analysts are definitely expecting Melco International Development's growth to accelerate, with the forecast 68% annualised growth to the end of 2021 ranking favourably alongside historical growth of 15% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 30% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Melco International Development to grow faster than the wider industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Melco International Development. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Melco International Development.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Melco International Development analysts - going out to 2023, and you can see them 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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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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