News Flash: 16 Analysts Think SJM Holdings Limited (HKG:880) Earnings Are Under Threat

The latest analyst coverage could presage a bad day for SJM Holdings Limited (HKG:880), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

Following the downgrade, the latest consensus from SJM Holdings' 16 analysts is for revenues of HK$13b in 2022, which would reflect a huge 34% improvement in sales compared to the last 12 months. Losses are presumed to reduce, shrinking 15% from last year to HK$0.62. Yet prior to the latest estimates, the analysts had been forecasting revenues of HK$16b and losses of HK$0.55 per share in 2022. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.

View our latest analysis for SJM Holdings

The consensus price target was broadly unchanged at HK$5.21, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. 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 SJM Holdings, with the most bullish analyst valuing it at HK$9.00 and the most bearish at HK$3.50 per share. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. For example, we noticed that SJM Holdings' rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 48% growth to the end of 2022 on an annualised basis. That is well above its historical decline of 25% a year over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 25% annually. Not only are SJM Holdings' revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on SJM Holdings after the downgrade.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for SJM Holdings going out to 2024, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.