Analysts Just Shaved Their MMG Limited (HKG:1208) Forecasts Dramatically

Market forces rained on the parade of MMG Limited (HKG:1208) shareholders today, when the analysts downgraded their forecasts for this year. 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 MMG's nine analysts is for revenues of US$3.7b in 2022, which would reflect a solid 13% improvement in sales compared to the last 12 months. Statutory earnings per share are supposed to nosedive 43% to US$0.023 in the same period. Prior to this update, the analysts had been forecasting revenues of US$4.2b and earnings per share (EPS) of US$0.055 in 2022. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a large cut to earnings per share numbers as well.

Check out our latest analysis for MMG

The consensus price target fell 6.6% to US$0.38, with the weaker earnings outlook clearly leading analyst valuation estimates. 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 MMG, with the most bullish analyst valuing it at US$5.00 and the most bearish at US$2.20 per share. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. 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.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. The analysts are definitely expecting MMG's growth to accelerate, with the forecast 28% annualised growth to the end of 2022 ranking favourably alongside historical growth of 0.008% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 4.0% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect MMG to grow faster than the wider industry.

The Bottom Line

The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. 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.

Worse, MMG is labouring under a substantial debt burden, which - if today's forecasts prove accurate - the forecast downgrade could potentially exacerbate. See why we're concerned about MMG's balance sheet by visiting our risks dashboard for free on our platform here.

We also provide an overview of the MMG Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, 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.