ZTO Express (Cayman) Inc. (NYSE:ZTO) shares fell 5.5% to US$26.00 in the week since its latest yearly results. It looks like a credible result overall – although revenues of CN¥22b were in line with what analysts predicted, ZTO Express (Cayman) surprised by delivering a statutory profit of CN¥7.23 per share, a notable 18% above expectations. This is an important time for investors, as they can track a company’s performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, the latest consensus from ZTO Express (Cayman)’s 17 analysts is for revenues of CN¥26.7b in 2020, which would reflect a sizeable 21% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to dip 2.8% to CN¥7.04 in the same period. Yet prior to the latest earnings, analysts had been forecasting revenues of CN¥27.7b and earnings per share (EPS) of CN¥7.14 in 2020. So it looks like analysts have become a bit less optimistic after the latest results announcement, with revenues expected to fall even as the company is expected to maintain EPS.
Analysts have also increased their price target 8.8% to CN¥198, clearly signalling that lower revenue forecasts next year are not expected to have a material impact on ZTO Express (Cayman)’s 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 ZTO Express (Cayman) at CN¥228 per share, while the most bearish prices it at CN¥140. This shows there is still quite a bit of diversity in estimates, but analysts don’t appear to be totally split on the stock as though it might be a success or failure situation.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It’s pretty clear that analysts expect ZTO Express (Cayman)’s revenue growth will slow down substantially, with revenues next year expected to grow 21%, compared to a historical growth rate of 29% over the past five years. Juxtapose this against the other companies in the market with analyst coverage, which are forecast to grow their revenues (in aggregate) 6.2% next year. So it’s pretty clear that, while ZTO Express (Cayman)’s revenue growth is expected to slow, it’s still expected to grow faster than the market itself.
The Bottom Line
The most obvious conclusion from these results is that there’s been no major change in the business’ prospects in recent times, with analysts holding earnings per share steady, in line with previous estimates. Unfortunately analysts also downgraded their revenue estimates, although industry data suggests that ZTO Express (Cayman)’s revenues are expected to grow faster than the wider market. Still, earnings are more important to the long-term value of the business. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. We have forecasts for ZTO Express (Cayman) going out to 2022, and you can see them free on our platform here.
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