One thing we could say about the analysts on West China Cement Limited (HKG:2233) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.

After this downgrade, West China Cement's five analysts are now forecasting revenues of CN¥10b in 2024. This would be a huge 23% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to leap 295% to CN¥0.20. Before this latest update, the analysts had been forecasting revenues of CN¥11b and earnings per share (EPS) of CN¥0.26 in 2024. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a large cut to earnings per share numbers as well.

Analysts made no major changes to their price target of CN¥1.32, suggesting the downgrades are not expected to have a long-term impact on West China Cement's valuation. 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 West China Cement at CN¥1.48 per share, while the most bearish prices it at CN¥1.07. This shows there is still some 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.

Of course, another way to look at these forecasts is to place them into context against the industry itself. The analysts are definitely expecting West China Cement's growth to accelerate, with the forecast 50% annualised growth to the end of 2024 ranking favourably alongside historical growth of 5.5% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 3.9% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that West China Cement is expected to grow much faster than its 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 West China Cement. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will 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 West China Cement after the downgrade.

Worse, West China Cement is labouring under a substantial debt burden, which - if today's forecasts prove accurate - the forecast downgrade could potentially exacerbate. See why we're concerned about West China Cement's balance sheet by visiting our risks dashboard for free on our platform here.

Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.