Celebrations may be in order for CSC Financial Co., Ltd. (HKG:6066) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. The analysts greatly increased their revenue estimates, suggesting a stark improvement in business fundamentals. The market seems to be pricing in some improvement in the business too, with the stock up 7.1% over the past week, closing at HK$10.80. Whether the upgrade is enough to drive the stock price higher is yet to be seen, however.
Following the upgrade, the most recent consensus for CSC Financial from its five analysts is for revenues of CN¥21b in 2020 which, if met, would be a satisfactory 2.4% increase on its sales over the past 12 months. Per-share earnings are expected to increase 7.2% to CN¥1.20. Prior to this update, the analysts had been forecasting revenues of CN¥18b and earnings per share (EPS) of CN¥1.06 in 2020. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.
Although the analysts have upgraded their earnings estimates, there was no change to the consensus price target of CN¥10.82, suggesting that the forecast performance does not have a long term impact on the company's valuation. 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. There are some variant perceptions on CSC Financial, with the most bullish analyst valuing it at CN¥16.02 and the most bearish at CN¥9.26 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
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. One thing stands out from these estimates, which is that CSC Financial is forecast to grow faster in the future than it has in the past, with revenues expected to grow 2.4%. If achieved, this would be a much better result than the 3.1% annual decline over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 13% next year. So although CSC Financial's revenue growth is expected to improve, it is still expected to grow slower than the industry.
The Bottom Line
The biggest takeaway for us from these new estimates is that analysts upgraded their earnings per share estimates, with improved earnings power expected for this year. Pleasantly, analysts also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow slower than the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So CSC Financial could be a good candidate for more research.
These earnings upgrades look like a sterling endorsement, but before diving in - you should know that we've spotted 3 potential warning sign with CSC Financial, including concerns around earnings quality. You can learn more, and discover the 1 other warning sign we've identified, for free on our platform here.
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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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