These Analysts Just Made An Downgrade To Their Alector, Inc. (NASDAQ:ALEC) EPS Forecasts

Today is shaping up negative for Alector, Inc. (NASDAQ:ALEC) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.

After this downgrade, Alector's seven analysts are now forecasting revenues of US$263m in 2022. This would be a huge 33% improvement in sales compared to the last 12 months. Losses are expected to increase substantially, hitting US$0.46 per share. Previously, the analysts had been modelling revenues of US$340m and earnings per share (EPS) of US$0.93 in 2022. There looks to have been a major change in sentiment regarding Alector's prospects, with a pretty serious reduction to revenues and the analysts now forecasting a loss instead of a profit.

View our latest analysis for Alector

There was no major change to the consensus price target of US$39.76, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. 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. The most optimistic Alector analyst has a price target of US$54.00 per share, while the most pessimistic values it at US$29.00. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's pretty clear that there is an expectation that Alector's revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 33% growth on an annualised basis. This is compared to a historical growth rate of 54% 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) 13% 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 biggest low-light for us was that the forecasts for Alector dropped from profits to a loss this year. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better 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 Alector after the downgrade.

So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Alector, including dilutive stock issuance over the past year. Learn more, and discover the 3 other risks we've identified, for 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.