Earnings Update: PolyNovo Limited (ASX:PNV) Just Reported And Analysts Are Trimming Their Forecasts

PolyNovo Limited (ASX:PNV) last week reported its latest half-year results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. Overall the results were a little better than the analysts were expecting, with revenues beating forecasts by 9.6%to hit AU$13m. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on PolyNovo after the latest results.

See our latest analysis for PolyNovo

Taking into account the latest results, the consensus forecast from PolyNovo's six analysts is for revenues of AU$31.5m in 2021, which would reflect a huge 28% improvement in sales compared to the last 12 months. Losses are expected to be contained, narrowing 11% from last year to AU$0.0071. Yet prior to the latest earnings, the analysts had been forecasting revenues of AU$36.0m and losses of AU$0.0057 per share in 2021. There's been a definite change in sentiment in this update, with the analysts administering a notable cut to next year's revenue estimates, while at the same time increasing their loss per share forecasts.

The consensus price target fell 8.6% to AU$2.66, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic PolyNovo analyst has a price target of AU$3.30 per share, while the most pessimistic values it at AU$1.74. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the PolyNovo's past performance and to peers in the same industry. We would highlight that PolyNovo's revenue growth is expected to slow, with forecast 28% increase next year well below the historical 48%p.a. growth over the last five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 14% next year. Even after the forecast slowdown in growth, it seems obvious that PolyNovo is also expected to grow faster than the wider industry.

The Bottom Line

The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at PolyNovo. They also downgraded their revenue estimates, although industry data suggests that PolyNovo's revenues are expected to grow faster than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates - from multiple PolyNovo analysts - going out to 2025, and you can see them free on our platform here.

You should always think about risks though. Case in point, we've spotted 2 warning signs for PolyNovo you should be aware of.

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This article by Simply Wall St is general in nature. 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.
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