Time To Worry? Analysts Are Downgrading Their Jubilant Pharmova Limited (NSE:JUBLPHARMA) Outlook

Market forces rained on the parade of Jubilant Pharmova Limited (NSE:JUBLPHARMA) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.

Following the downgrade, the latest consensus from Jubilant Pharmova's five analysts is for revenues of ₹66b in 2022, which would reflect a modest 7.7% improvement in sales compared to the last 12 months. Per-share earnings are expected to surge 42% to ₹51.03. Prior to this update, the analysts had been forecasting revenues of ₹77b and earnings per share (EPS) of ₹71.17 in 2022. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a large cut to earnings per share numbers as well.

Check out our latest analysis for Jubilant Pharmova

Despite the cuts to forecast earnings, there was no real change to the ₹984 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. 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 Jubilant Pharmova at ₹1,088 per share, while the most bearish prices it at ₹798. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that the analysts have a clear view on its prospects.

Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that Jubilant Pharmova's revenue growth is expected to slow, with the forecast 7.7% annualised growth rate until the end of 2022 being well below the historical 9.6% p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 11% annually. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Jubilant Pharmova.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Jubilant Pharmova. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Jubilant Pharmova's revenues are expected to grow slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Jubilant Pharmova after the downgrade.

A high debt burden combined with a downgrade of this magnitude always gives us some reason for concern, especially if these forecasts are just the first sign of a business downturn. See why we're concerned about Jubilant Pharmova's balance sheet by visiting our risks dashboard for free on our platform here.

Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.

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