Time To Worry? Analysts Are Downgrading Their Cathay Pacific Airways Limited (HKG:293) Outlook

Market forces rained on the parade of Cathay Pacific Airways Limited (HKG:293) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon. The stock price has risen 5.7% to HK$6.89 over the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.

Following the downgrade, the latest consensus from Cathay Pacific Airways' 13 analysts is for revenues of HK$53b in 2022, which would reflect a solid 16% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 46% to HK$0.52. Yet before this consensus update, the analysts had been forecasting revenues of HK$62b and losses of HK$0.25 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.

See our latest analysis for Cathay Pacific Airways

There was no major change to the consensus price target of HK$7.34, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Cathay Pacific Airways, with the most bullish analyst valuing it at HK$8.50 and the most bearish at HK$5.60 per share. This shows there is still some 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.

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. One thing stands out from these estimates, which is that Cathay Pacific Airways is forecast to grow faster in the future than it has in the past, with revenues expected to display 16% annualised growth until the end of 2022. If achieved, this would be a much better result than the 15% annual decline 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 26% annually for the foreseeable future. So although Cathay Pacific Airways' 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 Cathay Pacific Airways. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Cathay Pacific Airways' revenues are expected to grow slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Cathay Pacific Airways after the downgrade.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Cathay Pacific Airways going out to 2024, and you can see them 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.