Things Look Grim For Guotai Junan International Holdings Limited (HKG:1788) After Today's Downgrade

The latest analyst coverage could presage a bad day for Guotai Junan International Holdings Limited (HKG:1788), 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) forecasts went under the knife, suggesting the analysts have soured majorly on the business.

After the downgrade, the three analysts covering Guotai Junan International Holdings are now predicting revenues of HK$4.5b in 2022. If met, this would reflect a substantial 39% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to expand 14% to HK$0.13. Prior to this update, the analysts had been forecasting revenues of HK$5.2b and earnings per share (EPS) of HK$0.22 in 2022. Indeed, we can see that the analysts are a lot more bearish about Guotai Junan International Holdings' prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

Check out our latest analysis for Guotai Junan International Holdings

It'll come as no surprise then, to learn that the analysts have cut their price target 7.5% to HK$1.52. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Guotai Junan International Holdings, with the most bullish analyst valuing it at HK$1.66 and the most bearish at HK$1.30 per share. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting Guotai Junan International Holdings is an easy business to forecast or the underlying assumptions are obvious.

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. The analysts are definitely expecting Guotai Junan International Holdings' growth to accelerate, with the forecast 39% annualised growth to the end of 2022 ranking favourably alongside historical growth of 10% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 12% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Guotai Junan International Holdings is expected to grow much faster than its industry.

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 Guotai Junan International Holdings. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Guotai Junan International Holdings analysts - going out to 2024, and you can see them free on our platform here.

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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.