Stock Analysis

Bearish: Analysts Just Cut Their Air China Limited (HKG:753) Revenue and EPS estimates

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Market forces rained on the parade of Air China Limited (HKG:753) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.

Following the downgrade, the latest consensus from Air China's 16 analysts is for revenues of CN¥78b in 2022, which would reflect a credible 7.2% improvement in sales compared to the last 12 months. Losses are supposed to balloon 24% to CN¥1.65 per share. However, before this estimates update, the consensus had been expecting revenues of CN¥99b and CN¥0.59 per share in losses. 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 Air China

SEHK:753 Earnings and Revenue Growth May 8th 2022

The consensus price target was broadly unchanged at CN¥5.01, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Air China at CN¥8.20 per share, while the most bearish prices it at CN¥3.85. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

Of course, another way to look at these forecasts is to place them into context against the industry itself. For example, we noticed that Air China's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 9.8% growth to the end of 2022 on an annualised basis. That is well above its historical decline of 12% 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 Air China's revenue growth is expected to improve, it is still expected to grow slower than the industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Air China's 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 Air China after the downgrade.

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 Air China 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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Find out whether Air China is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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