Some Analysts Just Cut Their MediPharm Labs Corp. (TSE:LABS) Estimates

One thing we could say about the analysts on MediPharm Labs Corp. (TSE:LABS) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. 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 most recent consensus for MediPharm Labs from its four analysts is for revenues of CA$24m in 2022 which, if met, would be a meaningful 15% increase on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 55% to CA$0.08. Yet before this consensus update, the analysts had been forecasting revenues of CA$33m and losses of CA$0.077 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.

Check out our latest analysis for MediPharm Labs

The consensus price target fell 40% to CA$0.15, implicitly signalling that lower earnings per share are a leading indicator for MediPharm Labs' 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. The most optimistic MediPharm Labs analyst has a price target of CA$0.20 per share, while the most pessimistic values it at CA$0.10. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. One thing stands out from these estimates, which is that MediPharm Labs is forecast to grow faster in the future than it has in the past, with revenues expected to display 20% annualised growth until the end of 2022. If achieved, this would be a much better result than the 44% annual decline over the past three years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 23% per year. So while MediPharm Labs' revenues are expected to improve, it seems that it is expected to grow at about the same rate as the overall industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at MediPharm Labs. There was also a drop in their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of MediPharm Labs' future valuation. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of MediPharm Labs going forwards.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for MediPharm Labs going out to 2023, 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.