Things Look Grim For Mayne Pharma Group Limited (ASX:MYX) After Today's Downgrade

Market forces rained on the parade of Mayne Pharma Group Limited (ASX:MYX) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.

After this downgrade, Mayne Pharma Group's five analysts are now forecasting revenues of AU$409m in 2022. This would be an okay 5.3% improvement in sales compared to the last 12 months. Losses are forecast to hold steady at around AU$0.044. Yet before this consensus update, the analysts had been forecasting revenues of AU$455m and losses of AU$0.02 per share in 2022. 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.

See our latest analysis for Mayne Pharma Group

The consensus price target fell 24% to AU$0.36, implicitly signalling that lower earnings per share are a leading indicator for Mayne Pharma Group's valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Mayne Pharma Group analyst has a price target of AU$0.65 per share, while the most pessimistic values it at AU$0.25. 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. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. One thing stands out from these estimates, which is that Mayne Pharma Group is forecast to grow faster in the future than it has in the past, with revenues expected to display 11% annualised growth until the end of 2022. If achieved, this would be a much better result than the 5.7% annual decline over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 51% annually for the foreseeable future. So although Mayne Pharma Group's revenue growth is expected to improve, it is still expected to grow slower than the industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Mayne Pharma Group's revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Mayne Pharma Group.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Mayne Pharma Group analysts - going out to 2024, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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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.