Time To Worry? Analysts Just Downgraded Their MediPharm Labs Corp. (TSE:LABS) Outlook

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. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.

After the downgrade, the consensus from MediPharm Labs' four analysts is for revenues of CA$19m in 2022, which would reflect a discernible 5.2% decline in sales compared to the last year of performance. Losses are predicted to fall substantially, shrinking 47% to CA$0.087. Yet prior to the latest estimates, the analysts had been forecasting revenues of CA$24m and losses of CA$0.08 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.

View our latest analysis for MediPharm Labs

The consensus price target fell 33% to CA$0.10, implicitly signalling that lower earnings per share are a leading indicator for MediPharm Labs' valuation.

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. One thing that stands out from these estimates is that shrinking revenues are expected to moderate over the period ending 2022 compared to the historical decline of 61% per annum 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 22% per year. So it's pretty clear that, while it does have declining revenues, the analysts also expect MediPharm Labs to suffer worse than the wider 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. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than 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. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on MediPharm Labs after today.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. 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.