Things Look Grim For MediPharm Labs Corp. (TSE:LABS) After Today's Downgrade

The latest analyst coverage could presage a bad day for MediPharm Labs Corp. (TSE:LABS), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

After this downgrade, MediPharm Labs' four analysts are now forecasting revenues of CA$33m in 2022. This would be a substantial 53% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 62% to CA$0.077. Yet prior to the latest estimates, the analysts had been forecasting revenues of CA$38m and losses of CA$0.067 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 38% to CA$0.25, 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 MediPharm Labs analyst has a price target of CA$0.30 per share, while the most pessimistic values it at CA$0.20. 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.

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. The analysts are definitely expecting MediPharm Labs' growth to accelerate, with the forecast 53% annualised growth to the end of 2022 ranking favourably alongside historical growth of 24% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 23% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect MediPharm Labs to grow faster 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. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of MediPharm Labs.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple MediPharm Labs analysts - going out to 2023, 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.