Need To Know: Analysts Just Made A Substantial Cut To Their Simcere Pharmaceutical Group Limited (HKG:2096) Estimates

The analysts covering Simcere Pharmaceutical Group Limited (HKG:2096) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

After the downgrade, the six analysts covering Simcere Pharmaceutical Group are now predicting revenues of CN¥7.6b in 2023. If met, this would reflect a satisfactory 7.9% improvement in sales compared to the last 12 months. Statutory earnings per share are supposed to crater 49% to CN¥0.60 in the same period. Prior to this update, the analysts had been forecasting revenues of CN¥9.7b and earnings per share (EPS) of CN¥0.80 in 2023. It looks like analyst sentiment has declined substantially, with a sizeable cut to revenue estimates and a pretty serious decline to earnings per share numbers as well.

See our latest analysis for Simcere Pharmaceutical Group

The consensus price target fell 16% to CN¥10.43, with the weaker earnings outlook clearly leading analyst valuation estimates. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Simcere Pharmaceutical Group at CN¥13.14 per share, while the most bearish prices it at CN¥7.59. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Simcere Pharmaceutical Group shareholders.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It's pretty clear that there is an expectation that Simcere Pharmaceutical Group's revenue growth will slow down substantially, with revenues to the end of 2023 expected to display 7.9% growth on an annualised basis. This is compared to a historical growth rate of 16% over the past three years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 13% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Simcere Pharmaceutical Group.

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 Simcere Pharmaceutical Group. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Simcere Pharmaceutical Group.

There might be good reason for analyst bearishness towards Simcere Pharmaceutical Group, like recent substantial insider selling. Learn more, and discover the 2 other concerns we've identified, for 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.