One thing we could say about the analysts on Tourism Holdings Limited (NZSE:THL) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business. Bidders are definitely seeing a different story, with the stock price of NZ$2.39 reflecting a 10% rise in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.
Following the downgrade, the consensus from three analysts covering Tourism Holdings is for revenues of NZ$360m in 2020, implying a chunky 15% decline in sales compared to the last 12 months. Statutory earnings per share are supposed to tumble 96% to NZ$0.0073 in the same period. Previously, the analysts had been modelling revenues of NZ$409m and earnings per share (EPS) of NZ$0.13 in 2020. Indeed, we can see that the analysts are a lot more bearish about Tourism Holdings' prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.
Analysts made no major changes to their price target of NZ$2.68, suggesting the downgrades are not expected to have a long-term impact on Tourism Holdings'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 Tourism Holdings at NZ$3.79 per share, while the most bearish prices it at NZ$1.50. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
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. We would highlight that sales are expected to reverse, with the forecast 15% revenue decline a notable change from historical growth of 14% 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 6.7% next year. It's pretty clear that Tourism Holdings' 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 Tourism Holdings' revenues are expected to grow slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Tourism Holdings.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Tourism Holdings, including its declining profit margins. Learn more, and discover the 3 other risks we've identified, for free on our platform here.
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