Time To Worry? Analysts Are Downgrading Their China Southern Airlines Company Limited (HKG:1055) Outlook

Market forces rained on the parade of China Southern Airlines Company Limited (HKG:1055) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.

Following the downgrade, the most recent consensus for China Southern Airlines from its 15 analysts is for revenues of CN¥99b in 2022 which, if met, would be a notable 8.5% increase on its sales over the past 12 months. Losses are expected to increase slightly, to CN¥1.18 per share. Yet before this consensus update, the analysts had been forecasting revenues of CN¥110b and losses of CN¥0.88 per share in 2022. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

Check out our latest analysis for China Southern Airlines

There was no major change to the consensus price target of CN¥4.19, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. 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. There are some variant perceptions on China Southern Airlines, with the most bullish analyst valuing it at CN¥5.90 and the most bearish at CN¥3.29 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.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. For example, we noticed that China Southern Airlines' rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 18% growth to the end of 2022 on an annualised basis. That is well above its historical decline of 7.2% a year over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 25% annually for the foreseeable future. So although China Southern Airlines' revenue growth is expected to improve, it is still expected to grow slower than the industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at China Southern Airlines. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of China Southern Airlines.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for China Southern Airlines going out to 2024, and you can see them 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.