Analysts Are Betting On Alector, Inc. (NASDAQ:ALEC) With A Big Upgrade This Week

Alector, Inc. (NASDAQ:ALEC) shareholders will have a reason to smile today, with the analysts making substantial upgrades to next year's statutory forecasts. The analysts have sharply increased their revenue numbers, with a view that Alector will make substantially more sales than they'd previously expected.

Following the upgrade, the most recent consensus for Alector from its seven analysts is for revenues of US$166m in 2023 which, if met, would be a huge 24% increase on its sales over the past 12 months. Per-share losses are expected to explode, reaching US$2.18 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$152m and losses of US$1.31 per share in 2023. While next year's revenue estimates increased, there was also a sizeable expansion in loss per share expectations, suggesting the consensus has a bit of a mixed view on the stock.

See our latest analysis for Alector

It will come as no surprise that expanding losses caused the consensus price target to fall 18% to US$17.44 with the analysts implicitly ranking ongoing losses as a greater concern than growing revenues. 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 Alector at US$54.00 per share, while the most bearish prices it at US$6.00. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. 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.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that Alector's revenue growth will slow down substantially, with revenues to the end of 2023 expected to display 19% growth on an annualised basis. This is compared to a historical growth rate of 58% over the past five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 15% per year. So it's pretty clear that, while Alector's revenue growth is expected to slow, it's still expected to grow faster than the industry itself.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at Alector. Fortunately, analysts also upgraded their revenue estimates, and our data indicates sales 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 Alector's future valuation. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Alector.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Alector analysts - going out to 2025, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies 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.