Formosa Chemicals & Fibre Corporation (TPE:1326) Analysts Are More Bearish Than They Used To Be

The latest analyst coverage could presage a bad day for Formosa Chemicals & Fibre Corporation (TPE:1326), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.

After the downgrade, the eleven analysts covering Formosa Chemicals & Fibre are now predicting revenues of NT$311b in 2021. If met, this would reflect a sizeable 23% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to bounce 60% to NT$5.35. Prior to this update, the analysts had been forecasting revenues of NT$366b and earnings per share (EPS) of NT$6.13 in 2021. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a real cut to earnings per share numbers as well.

View our latest analysis for Formosa Chemicals & Fibre

Despite the cuts to forecast earnings, there was no real change to the NT$94.30 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Formosa Chemicals & Fibre at NT$108 per share, while the most bearish prices it at NT$66.00. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. One thing stands out from these estimates, which is that Formosa Chemicals & Fibre is forecast to grow faster in the future than it has in the past, with revenues expected to display 23% annualised growth until the end of 2021. If achieved, this would be a much better result than the 2.4% annual decline 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 8.9% annually. Not only are Formosa Chemicals & Fibre's revenues expected to improve, it seems that the analysts are also expecting it 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 Formosa Chemicals & Fibre. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better 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 Formosa Chemicals & Fibre after the downgrade.

Uncomfortably, our automated valuation tool also suggests that Formosa Chemicals & Fibre stock could be overvalued following the downgrade. Shareholders could be left disappointed if these estimates play out. Find out why, and see how we estimate the valuation for 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.

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