Homology Medicines, Inc. (NASDAQ:FIXX) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's statutory forecasts. The analysts have sharply increased their revenue numbers, with a view that Homology Medicines will make substantially more sales than they'd previously expected.
Following this upgrade, Homology Medicines' nine analysts are forecasting 2021 revenues to be US$33m, approximately in line with the last 12 months. Losses are expected to increase slightly, to US$1.89 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$28m and losses of US$1.95 per share in 2021. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a sizeable increase to their revenue forecasts while also reducing the estimated loss as the business grows towards breakeven.
Despite these upgrades, the analysts have not made any major changes to their price target of US$24.11, implying that their latest estimates don't have a long term impact on what they think the stock is worth. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Homology Medicines at US$35.00 per share, while the most bearish prices it at US$8.00. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. 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.
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. We would highlight that Homology Medicines' revenue growth is expected to slow, with the forecast 1.2% annualised growth rate until the end of 2021 being well below the historical 88% p.a. growth over the last three years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 10% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Homology Medicines.
The Bottom Line
The highlight for us was that the consensus reduced its estimated losses this year, perhaps suggesting Homology Medicines is moving incrementally towards profitability. Pleasantly, analysts also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow slower than the wider market. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Homology Medicines.
These earnings upgrades look like a sterling endorsement, but before diving in - you should know that we've spotted 3 potential risks with Homology Medicines, including dilutive stock issuance over the past year. For more information, you can click through to our platform to learn more about this and the 2 other risks we've identified .
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
When trading Homology Medicines or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.