These Analysts Think Denali Therapeutics Inc.'s (NASDAQ:DNLI) Sales Are Under Threat

Today is shaping up negative for Denali Therapeutics Inc. (NASDAQ:DNLI) shareholders, with the analysts delivering a substantial negative revision to next year's forecasts. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.

After the downgrade, the 15 analysts covering Denali Therapeutics are now predicting revenues of US$114m in 2023. If met, this would reflect a modest 2.7% improvement in sales compared to the last 12 months. Per-share losses are expected to explode, reaching US$2.86 per share. Yet before this consensus update, the analysts had been forecasting revenues of US$180m and losses of US$2.83 per share in 2023. 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 making no real change to the loss per share numbers.

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The consensus price target fell 5.6% to US$64.80, with the analysts clearly concerned about the weaker revenue outlook and expectation of ongoing losses. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Denali Therapeutics, with the most bullish analyst valuing it at US$105 and the most bearish at US$38.00 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.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that Denali Therapeutics' revenue growth is expected to slow, with the forecast 2.2% annualised growth rate until the end of 2023 being well below the historical 34% 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 14% annually. Factoring in the forecast slowdown in growth, it seems obvious that Denali Therapeutics is also expected to grow slower than other industry participants.

The Bottom Line

Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Denali Therapeutics' revenues are expected to grow slower 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 Denali Therapeutics' future valuation. 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 Denali Therapeutics after today.

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 Denali Therapeutics going out to 2024, 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. 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.