Earnings Release: Here's Why Analysts Cut Their Equillium, Inc. (NASDAQ:EQ) Price Target To US$6.06

A week ago, Equillium, Inc. (NASDAQ:EQ) came out with a strong set of quarterly numbers that could potentially lead to a re-rate of the stock. The results were impressive, with revenues of US$9.1m exceeding analyst forecasts by 49%, and statutory losses of US$0.10 were likewise much smaller than the analysts had forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

View our latest analysis for Equillium

Taking into account the latest results, the five analysts covering Equillium provided consensus estimates of US$26.2m revenue in 2023, which would reflect a disturbing 22% decline over the past 12 months. Losses are expected to increase substantially, hitting US$0.59 per share. Before this earnings announcement, the analysts had been modelling revenues of US$25.9m and losses of US$0.64 per share in 2023. It looks like there's been a modest increase in sentiment in the recent updates, with the analysts becoming a bit more optimistic in their predictions for losses per share, even though the revenue numbers were unchanged.

The consensus price target fell 35% to US$6.06despite the forecast for smaller losses next year. It looks like the ongoing lack of profitability is starting to weigh on valuations. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Equillium at US$8.00 per share, while the most bearish prices it at US$2.80. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying 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. These estimates imply that revenue is expected to slow, with a forecast annualised decline of 40% by the end of 2023. This indicates a significant reduction from annual growth of 105% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 15% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Equillium is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that the analysts reconfirmed their loss per share estimates for next year. On the plus side, there were no major changes to revenue estimates; although forecasts imply they will perform worse than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Equillium's future valuation.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Equillium analysts - going out to 2025, and you can see them free on our platform here.

Don't forget that there may still be risks. For instance, we've identified 4 warning signs for Equillium (1 doesn't sit too well with us) you should be aware of.

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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.