Brokerage firms are presenting widely varying forecasts, not only in investment opinions but also in target prices and KOSPI projections. Just two months ago, many brokerages were optimistic about a rising KOSPI, but they have recently begun to lower their target prices, with some individual stock targets diverging by more than three times.
According to financial information provider FnGuide, reports released over the past three months show a staggering difference in target prices for SK Hynix, ranging from 1.48 million won to 4.7 million won, a gap of 3.22 million won. The highest target price is 3.18 times the lowest. Samsung Electronics also shows a difference of 300,000 won to 650,000 won, a 2.17-fold variation. Other major stocks in the KOSDAQ market, such as SK Square, Samsung Electro-Mechanics, and Samsung SDI, also exhibit target price discrepancies exceeding twofold.
Not only are individual stock forecasts diverging, but overall market outlooks from brokerages are also markedly different. Daishin Securities recently revised its KOSPI forecast for the year from 11,500 points to the 9,300 range, citing rising bond rates and the potential for further rate hikes, which led to a reduction in the target price-to-earnings ratio (PER) for semiconductors from 8 to 7. This adjustment also reflects a sharp upward revision in earnings expectations for non-semiconductor sectors. With the export momentum outside of semiconductors just beginning to recover, the likelihood of further valuation expansion appears limited.
Shinhan Investment Corp. adjusted its forecast on July 30, lowering its previous estimate of 11,000 points to 8,300 points for the third quarter and 8,800 points for the second half of the year, factoring in interest rate hikes and changes in earnings per share (EPS). Kiwoom Securities noted that the current earnings season for the second and third quarters is reaffirming the reliability and visibility of semiconductor profits, predicting a return to the historical valuation band lower limit of 9,000 points by year-end.
While domestic brokerages are consistently lowering their forecasts, global investment banks remain optimistic about the South Korean stock market. Goldman Sachs stated on August 4 that the current KOSPI market reflects excessive pessimism compared to fundamentals, maintaining a 12-month target index of 12,000 points. Morgan Stanley also kept its target of 9,000 points while suggesting a short-term range of 5,500 to 10,500 points. JP Morgan, on July 21, reiterated its 'overweight' opinion on the KOSPI with a 12-month target of 12,500 points. This marks a stark contrast in market outlooks within just a few months.
The challenge for investors lies in the tendency to accept KOSPI forecasts and target prices as definitive investment criteria. In an unclear market direction, extreme variations in predictions from different brokerages make it difficult for investors to determine which figures to trust.
Industry experts explain that the significant differences in target prices arise from varying assessments of a company's future performance and appropriate valuations. Baek Young-chan, head of the research center at Sangsangin Securities, noted that the methods used to calculate target prices differ among brokerages. Some may apply discounted cash flow (DCF) methods, while others might use relative valuation metrics like PER or price-to-book ratio (PBR).
Additionally, differences in earnings estimates are a key variable influencing target prices. Baek stated, “The methods of estimating profits may vary, and even for the same company, differing estimates of operating profit can lead to discrepancies in EPS and, consequently, target prices.”
In a volatile market like this year, where stock prices have fluctuated sharply in a short period, it has become increasingly challenging to determine appropriate stock prices using traditional valuation methods.
Choi Hyun-jae, head of the research center at Yuanta Securities, remarked, “If there had not been significant market volatility, such discrepancies in target prices would not have occurred. In this instance, across all sectors, particularly in IT, robotics, and shipbuilding, analysts using their traditional tools to set target prices have found it meaningless in the market conditions that persisted until July.”
He added, “Analysts’ target prices are officially set as 12-month targets, and while they may not react sensitively to fluctuations, they also consider long-term perspectives, which can lead to time lags in their assessments.”
* This article has been translated by AI.
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