The analysts covering Hammerson plc (LON:HMSO) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
After the downgrade, the consensus from Hammerson's eight analysts is for revenues of UK£183m in 2021, which would reflect a substantial 28% decline in sales compared to the last year of performance. The loss per share is anticipated to greatly reduce in the near future, narrowing 71% to UK£0.22. Yet prior to the latest estimates, the analysts had been forecasting revenues of UK£226m and losses of UK£0.13 per share in 2021. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target was broadly unchanged at UK£0.29, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Hammerson, with the most bullish analyst valuing it at UK£0.90 and the most bearish at UK£0.10 per share. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Of course, another way to look at these forecasts is to place them into context against the industry itself. Over the past five years, revenues have declined around 7.4% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for an annualised 28% decline in revenue until the end of 2021. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 4.2% per year. So while a broad number of companies are forecast to grow, unfortunately Hammerson is expected to see its sales affected worse than other companies in the industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Hammerson. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower 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 Hammerson after the downgrade.
There might be good reason for analyst bearishness towards Hammerson, like major dilution from new stock issuance in the past year. For more information, you can click here to discover this and the 1 other warning sign we've identified.
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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