Brokers Are Upgrading Their Views On DURECT Corporation (NASDAQ:DRRX) With These New Forecasts

Shareholders in DURECT Corporation (NASDAQ:DRRX) may be thrilled to learn that the analysts have just delivered a major upgrade to their near-term forecasts. The analysts greatly increased their revenue estimates, suggesting a stark improvement in business fundamentals. DURECT has also found favour with investors, with the stock up a noteworthy 22% to US$0.60 over the past week. Could this upgrade be enough to drive the stock even higher?

Following the upgrade, the latest consensus from DURECT's three analysts is for revenues of US$21m in 2022, which would reflect a sizeable 58% improvement in sales compared to the last 12 months. Losses are presumed to reduce, shrinking 11% from last year to US$0.15. However, before this estimates update, the consensus had been expecting revenues of US$15m and US$0.19 per share in losses. We can see there's definitely been a change in sentiment in this update, with the analysts administering a sizeable upgrade to this year's revenue estimates, while at the same time reducing their loss estimates.

See our latest analysis for DURECT

The consensus price target fell 5.9%, to US$5.33, suggesting that the analysts remain pessimistic on the company, despite the improved earnings and revenue outlook. 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. There are some variant perceptions on DURECT, with the most bullish analyst valuing it at US$6.00 and the most bearish at US$4.00 per share. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the DURECT's past performance and to peers in the same industry. One thing stands out from these estimates, which is that DURECT is forecast to grow faster in the future than it has in the past, with revenues expected to display 149% annualised growth until the end of 2022. If achieved, this would be a much better result than the 11% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the industry are forecast to see their revenue grow 3.5% per year. So it looks like DURECT is expected to grow faster than its competitors, at least for a while.

The Bottom Line

The highlight for us was that the consensus reduced its estimated losses this year, perhaps suggesting DURECT is moving incrementally towards profitability. Fortunately, analysts also upgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider market. A lower price target is not intuitively what we would expect from a company whose business prospects are improving - at least judging by these forecasts - but if the underlying fundamentals are strong, DURECT could be one for the watch list.

It's great to see the analysts upgrading their estimates, but the biggest highlight to us is that the business is expected to become profitable in the foreseeable future. For more information, you can click through to our free platform to learn more about these forecasts.

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.