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

The latest analyst coverage could presage a bad day for Mayne Pharma Group Limited (ASX:MYX), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon. Investors however, have been notably more optimistic about Mayne Pharma Group recently, with the stock price up a noteworthy 22% to AU$3.84 in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.

Following the latest downgrade, the three analysts covering Mayne Pharma Group provided consensus estimates of AU$269m revenue in 2023, which would reflect a stressful 28% decline on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 73% to AU$1.03. Yet prior to the latest estimates, the analysts had been forecasting revenues of AU$332m and losses of AU$0.71 per share in 2023. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.

See our latest analysis for Mayne Pharma Group

The consensus price target fell 20% to AU$4.03, implicitly signalling that lower earnings per share are a leading indicator for Mayne Pharma Group'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. There are some variant perceptions on Mayne Pharma Group, with the most bullish analyst valuing it at AU$4.80 and the most bearish at AU$3.50 per share. 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.

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 more thing stood out to us about these estimates, and it's the idea that Mayne Pharma Group's decline is expected to accelerate, with revenues forecast to fall at an annualised rate of 49% to the end of 2023. This tops off a historical decline of 8.8% a year over the past five years. Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 17% annually. So it's pretty clear that, while it does have declining revenues, the analysts also expect Mayne Pharma Group to suffer worse than the wider 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.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Mayne Pharma Group analysts - going out to 2025, and you can see them free on our platform here.

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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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.