Downgrade: Here's How Analysts See Hartalega Holdings Berhad (KLSE:HARTA) Performing In The Near Term

Today is shaping up negative for Hartalega Holdings Berhad (KLSE:HARTA) 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 the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. The stock price has risen 4.5% to RM2.10 over the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

Following the downgrade, the consensus from 21 analysts covering Hartalega Holdings Berhad is for revenues of RM2.8b in 2023, implying an uneasy 19% decline in sales compared to the last 12 months. Statutory earnings per share are presumed to jump 21% to RM0.063. Prior to this update, the analysts had been forecasting revenues of RM3.1b and earnings per share (EPS) of RM0.095 in 2023. Indeed, we can see that the analysts are a lot more bearish about Hartalega Holdings Berhad's prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.

Our analysis indicates that HARTA is potentially overvalued!

The consensus price target fell 17% to RM1.96, with the weaker earnings outlook clearly leading analyst valuation estimates. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Hartalega Holdings Berhad analyst has a price target of RM5.80 per share, while the most pessimistic values it at RM1.20. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. 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.

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. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 24% by the end of 2023. This indicates a significant reduction from annual growth of 27% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 7.2% per year. It's pretty clear that Hartalega Holdings Berhad's revenues are expected to perform substantially worse 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 analysts also downgraded their revenue estimates, and industry data suggests that Hartalega Holdings Berhad's revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

There might be good reason for analyst bearishness towards Hartalega Holdings Berhad, like the risk of cutting its dividend. Learn more, and discover the 2 other risks we've identified, 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.