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Today is shaping up negative for Melco International Development Limited (HKG:200) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon. Bidders are definitely seeing a different story, with the stock price of HK$14.42 reflecting a 12% rise in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.
After the downgrade, the consensus from Melco International Development's seven analysts is for revenues of HK$32b in 2020, which would reflect a painful 28% decline in sales compared to the last year of performance. Following this this downgrade, earnings are now expected to tip over into loss-making territory, with the analysts forecasting losses of HK$1.84 per share in 2020. Yet prior to the latest estimates, the analysts had been forecasting revenues of HK$39b and losses of HK$0.89 per share in 2020. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
Check out our latest analysis for Melco International Development
There was no major change to the consensus price target of HK$19.59, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. 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 Melco International Development at HK$25.00 per share, while the most bearish prices it at HK$12.60. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast revenue decline of 28%, a significant reduction from annual growth of 44% 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 12% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Melco International Development is expected to lag the wider industry.