Market forces rained on the parade of Sinopec Oilfield Service Corporation (HKG:1033) shareholders today, when the analysts downgraded their forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
Following the downgrade, the latest consensus from Sinopec Oilfield Service's three analysts is for revenues of CN¥76b in 2021, which would reflect a notable 12% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to soar 923% to CN¥0.043. Before this latest update, the analysts had been forecasting revenues of CN¥85b and earnings per share (EPS) of CN¥0.043 in 2021. So there's been a clear change in analyst sentiment in the recent update, with the analysts making a measurable cut to revenues and reconfirming their earnings per share estimates.
the analysts have also increased their price target 5.6% to CN¥0.64, clearly signalling that lower revenue forecasts this year are not expected to have a material impact on Sinopec Oilfield Service's 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 Sinopec Oilfield Service, with the most bullish analyst valuing it at CN¥0.88 and the most bearish at CN¥0.61 per share. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
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 Sinopec Oilfield Service's growth to accelerate, with the forecast 12% annualised growth to the end of 2021 ranking favourably alongside historical growth of 7.8% 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 8.8% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Sinopec Oilfield Service to grow faster than the wider industry.
The Bottom Line
The most obvious conclusion from this consensus update is that there's been no major change in the business' prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. There was also an increase in the price target, suggesting that there is more optimism baked into the forecasts than there was previously. Given the stark change in sentiment, we'd understand if investors became more cautious on Sinopec Oilfield Service after today.
As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with Sinopec Oilfield Service's financials, such as its declining profit margins. Learn more, and discover the 2 other concerns we've identified, for 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.
If you’re looking to trade Sinopec Oilfield Service, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.
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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.