Market forces rained on the parade of Medexus Pharmaceuticals Inc. (TSE:MDP) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the downgrade, the latest consensus from Medexus Pharmaceuticals' five analysts is for revenues of US$80m in 2022, which would reflect an okay 3.5% improvement in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 65% to US$0.67. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$97m and losses of US$0.48 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.
The consensus price target fell 27% to CA$6.39, implicitly signalling that lower earnings per share are a leading indicator for Medexus Pharmaceuticals' valuation. 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. There are some variant perceptions on Medexus Pharmaceuticals, with the most bullish analyst valuing it at CA$14.25 and the most bearish at CA$3.00 per share. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's pretty clear that there is an expectation that Medexus Pharmaceuticals' revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 4.7% growth on an annualised basis. This is compared to a historical growth rate of 57% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 32% per year. Factoring in the forecast slowdown in growth, it seems obvious that Medexus Pharmaceuticals is also expected to grow slower than other industry participants.
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 Medexus Pharmaceuticals. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Medexus Pharmaceuticals.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Medexus Pharmaceuticals, including dilutive stock issuance over the past year. Learn more, and discover the 3 other warning signs we've identified, for 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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