These Analysts Just Made A Noticeable Downgrade To Their HSS Engineers Berhad (KLSE:HSSEB) EPS Forecasts

Market forces rained on the parade of HSS Engineers Berhad (KLSE:HSSEB) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.

After the downgrade, the twin analysts covering HSS Engineers Berhad are now predicting revenues of RM193m in 2022. If met, this would reflect a substantial 23% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to soar 244% to RM0.025. Before this latest update, the analysts had been forecasting revenues of RM215m and earnings per share (EPS) of RM0.028 in 2022. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a considerable drop in earnings per share numbers as well.

See our latest analysis for HSS Engineers Berhad

What's most unexpected is that the consensus price target rose 15% to RM0.83, strongly implying the downgrade to forecasts is not expected to be more than a temporary blip. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values HSS Engineers Berhad at RM0.85 per share, while the most bearish prices it at RM0.82. This is a very narrow spread of estimates, implying either that HSS Engineers Berhad is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

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 forecasts are more or less bullish relative to other companies in the industry. It's clear from the latest estimates that HSS Engineers Berhad's rate of growth is expected to accelerate meaningfully, with the forecast 23% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 2.3% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 13% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect HSS Engineers Berhad to grow faster than the wider industry.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for HSS Engineers Berhad. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The rising price target is a puzzle, but still - with a serious cut to this year's outlook, we wouldn't be surprised if investors were a bit wary of HSS Engineers Berhad.

Still, the long-term prospects of the business are much more relevant than next year's earnings. At least one analyst has provided forecasts out to 2024, which can be seen for 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.