Need To Know: The Consensus Just Cut Its Alector, Inc. (NASDAQ:ALEC) Estimates For 2022

The latest analyst coverage could presage a bad day for Alector, Inc. (NASDAQ:ALEC), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Investors however, have been notably more optimistic about Alector recently, with the stock price up an impressive 12% to US$9.11 in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

Following the latest downgrade, the nine analysts covering Alector provided consensus estimates of US$157m revenue in 2022, which would reflect a disturbing 31% decline on its sales over the past 12 months. Before the latest update, the analysts were foreseeing US$237m of revenue in 2022. It looks like forecasts have become a fair bit less optimistic on Alector, given the sizeable cut to revenue estimates.

Check out our latest analysis for Alector

Notably, the analysts have cut their price target 10% to US$31.26, suggesting concerns around Alector's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Alector, with the most bullish analyst valuing it at US$54.00 and the most bearish at US$9.00 per share. 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.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Alector's past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with a forecast 39% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 92% over the last three years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 12% per year. It's pretty clear that Alector's revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The clear low-light was that analysts slashing their revenue forecasts for Alector this year. They're also anticipating slower revenue growth than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Alector after today.

There might be good reason for analyst bearishness towards Alector, like dilutive stock issuance over the past year. For more information, you can click here to discover this and the 3 other warning signs we've identified.

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.