Bearish: Analysts Just Cut Their Orient Overseas (International) Limited (HKG:316) Revenue and EPS estimates

Today is shaping up negative for Orient Overseas (International) Limited ( HKG:316 ) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. 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. Surprisingly the share price has been buoyant, rising 17% to HK$150 in the past 7 days. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

After the downgrade, the consensus from Orient Overseas (International)'s six analysts is for revenues of US$11b in 2023, which would reflect a concerning 45% decline in sales compared to the last year of performance. Statutory earnings per share are supposed to plummet 80% to US$2.99 in the same period. Before this latest update, the analysts had been forecasting revenues of US$13b and earnings per share (EPS) of US$4.68 in 2023. Indeed, we can see that the analysts are a lot more bearish about Orient Overseas (International)'s prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.

See our latest analysis for Orient Overseas (International)

It'll come as no surprise then, to learn that the analysts have cut their price target 8.6% to HK$132.74. 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. Currently, the most bullish analyst values Orient Overseas (International) at HK$180 per share, while the most bearish prices it at HK$110. As you can see the range of estimates is wide, suggesting there are some strongly diverging views on how think this business will perform. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the 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. We would highlight that sales are expected to reverse, with a forecast 45% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 30% over the last five years. Yet aggregate analyst estimates for other companies in the industry suggest that industry revenues are forecast to decline 19% per year. So it's pretty clear that Orient Overseas (International)'s revenues are expected to shrink 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. Unfortunately they also cut their revenue estimates for this year, and they expect sales to lag the wider market. That said, earnings per share are more important for creating value for shareholders. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Orient Overseas (International) analysts - going out to 2025, and you can see them free on our platform 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.