Time To Worry? Analysts Just Downgraded Their Genscript Biotech Corporation (HKG:1548) Outlook

The analysts covering Genscript Biotech Corporation (HKG:1548) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. 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 Genscript Biotech from its six analysts is for revenues of US$830m in 2023 which, if met, would be a substantial 33% increase on its sales over the past 12 months. Losses are expected to be contained, narrowing 10% from last year to US$0.096. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$1.0b and losses of US$0.093 per share in 2023. 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.

View our latest analysis for Genscript Biotech

The consensus price target fell 7.0% to US$3.74, implicitly signalling that lower earnings per share are a leading indicator for Genscript Biotech's valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Genscript Biotech at US$35.08 per share, while the most bearish prices it at US$18.50. 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.

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 Genscript Biotech's growth to accelerate, with the forecast 33% annualised growth to the end of 2023 ranking favourably alongside historical growth of 27% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 18% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Genscript Biotech to grow faster 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 Genscript Biotech. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better 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 Genscript Biotech's future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on Genscript Biotech after today.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Genscript Biotech analysts - going out to 2025, 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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