Kaori Heat Treatment Co., Ltd. (TWSE:8996) Analysts Just Trimmed Their Revenue Forecasts By 13%

The analysts covering Kaori Heat Treatment Co., Ltd. (TWSE:8996) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative. Surprisingly the share price has been buoyant, rising 16% to NT$370 in the past 7 days. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.

After this downgrade, Kaori Heat Treatment's four analysts are now forecasting revenues of NT$4.5b in 2024. This would be a modest 3.9% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to soar 27% to NT$8.20. Before this latest update, the analysts had been forecasting revenues of NT$5.2b and earnings per share (EPS) of NT$8.88 in 2024. Indeed, we can see that analyst sentiment has declined measurably after the new consensus came out, with a measurable cut to revenue estimates and a minor downgrade to EPS estimates to boot.

See our latest analysis for Kaori Heat Treatment

The average price target climbed 13% to NT$372 despite the reduced earnings forecasts, suggesting that this earnings impact could be a positive for the stock, once it passes.

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. We would highlight that Kaori Heat Treatment's revenue growth is expected to slow, with the forecast 3.9% annualised growth rate until the end of 2024 being well below the historical 16% p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 14% annually. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Kaori Heat Treatment.

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 Kaori Heat Treatment. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. There was also an increase in the price target, suggesting that there is more optimism baked into the forecasts than there was previously. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Kaori Heat Treatment going forwards.

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 Kaori Heat Treatment going out to 2025, and you can see them free on our platform here.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.