Investors in Lenovo Group Limited (HKG:992) had a good week, as its shares rose 2.6% to close at HK$5.82 following the release of its quarterly results. Revenues of US$14b were in line with forecasts, although earnings per share (EPS) came in below expectations at US$0.016, missing estimates by 9.4%. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. Readers will be glad to know we’ve aggregated the latest forecasts to see whether analysts have changed their mind on Lenovo Group after the latest results.
Taking into account the latest results, Lenovo Group’s 17 analysts currently expect revenues in 2020 to be US$52b, approximately in line with the last 12 months. Earnings per share are forecast to be US$0.061, approximately in line with the last 12 months. Before this earnings report, analysts had been forecasting revenues of US$53b and earnings per share (EPS) of US$0.065 in 2020. So it looks like there’s been a small decline in overall sentiment after the recent results – there’s been no major change to revenue estimates, but analysts did make a minor downgrade to their earnings per share forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$0.88, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. 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 Lenovo Group at US$1.04 per share, while the most bearish prices it at US$0.60. This shows there is still quite a bit of diversity in estimates, but analysts don’t appear to be totally split on the stock as though it might be a success or failure situation.
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 analysts are more or less bullish relative to other companies in the market. It’s pretty clear that analysts expect Lenovo Group’s revenue growth will slow down substantially, with revenues next year expected to grow 0.6%, compared to a historical growth rate of 2.7% over the past five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 13% next year. So it’s pretty clear that, while revenue growth is expected to slow down, analysts also expect the wider market to grow faster than Lenovo Group.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – although our data does suggest that Lenovo Group’s revenues are expected to perform worse than the wider market. The consensus price target held steady at US$0.88, with the latest estimates not enough to have an impact on analysts’ estimated valuations.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. At Simply Wall St, we have a full range of analyst estimates for Lenovo Group going out to 2022, and you can see them free on our platform here..
You can also see whether Lenovo Group is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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