Things Look Grim For PharmaEssentia Corporation (GTSM:6446) After Today's Downgrade

The latest analyst coverage could presage a bad day for PharmaEssentia Corporation (GTSM:6446), 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 the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

After the downgrade, the three analysts covering PharmaEssentia are now predicting revenues of NT$1.8b in 2021. If met, this would reflect a major 292% improvement in sales compared to the last 12 months. Per-share losses are expected to creep up to NT$5.36. Yet prior to the latest estimates, the analysts had been forecasting revenues of NT$2.1b and losses of NT$2.35 per share in 2021. 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 PharmaEssentia

Analysts lifted their price target 5.5% to NT$109, implicitly signalling that lower earnings per share are not expected to have a longer-term impact on the stock's value. 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 PharmaEssentia analyst has a price target of NT$137 per share, while the most pessimistic values it at NT$90.00. 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.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the PharmaEssentia's past performance and to peers in the same industry. The analysts are definitely expecting PharmaEssentia's growth to accelerate, with the forecast 292% annualised growth to the end of 2021 ranking favourably alongside historical growth of 80% 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 80% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect PharmaEssentia 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 PharmaEssentia. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. The increasing price target is not intuitively what we would expect to see, given these downgrades, and we'd suggest shareholders revisit their investment thesis before making a decision.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for PharmaEssentia going out to 2022, 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. 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.
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