Some Analysts Just Cut Their TerrAscend Corp. (CSE:TER) Estimates

The latest analyst coverage could presage a bad day for TerrAscend Corp. (CSE:TER), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.

Following the downgrade, the latest consensus from TerrAscend's eleven analysts is for revenues of US$282m in 2022, which would reflect a major 32% improvement in sales compared to the last 12 months. Following this this downgrade, earnings are now expected to tip over into loss-making territory, with the analysts forecasting losses of US$0.097 per share in 2022. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$341m and losses of US$0.09 per share in 2022. 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.

Check out our latest analysis for TerrAscend

The consensus price target fell 20% to US$4.99, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. 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 TerrAscend analyst has a price target of US$11.39 per share, while the most pessimistic values it at US$3.50. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's clear from the latest estimates that TerrAscend's rate of growth is expected to accelerate meaningfully, with the forecast 75% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 61% p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 23% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that TerrAscend is expected to grow much faster than its 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, although our data indicates revenues are expected to perform better than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Given the stark change in sentiment, we'd understand if investors became more cautious on TerrAscend after today.

So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with TerrAscend, including concerns around earnings quality. For more information, you can click here to discover this and the 1 other flag we've identified.

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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.