The analysts covering Seres Therapeutics, Inc. (NASDAQ:MCRB) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
Following this downgrade, Seres Therapeutics' seven analysts are forecasting 2021 revenues to be US$23m, approximately in line with the last 12 months. Per-share losses are expected to see a sharp uptick, reaching US$1.39. However, before this estimates update, the consensus had been expecting revenues of US$30m and US$1.29 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to next year's revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target lifted 11% to US$37.50, clearly signalling that the weaker revenue and EPS outlook are not expected to weigh on the stock over the longer term. 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. The most optimistic Seres Therapeutics analyst has a price target of US$49.00 per share, while the most pessimistic values it at US$24.00. 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.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Seres Therapeutics' past performance and to peers in the same industry. Over the past three years, revenues have declined around 1.1% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for a 1.6% decline in revenue next year. Compare this against analyst estimates for companies in the wider industry, which suggest that revenues (in aggregate) are expected to grow 21% next year. So it's pretty clear that, while it does have declining revenues, the analysts also expect Seres Therapeutics to suffer worse than the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for next year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. There was also a nice increase in the price target, with analysts apparently feeling that the intrinsic value of the business is improving. Overall, given the drastic downgrade to next year's forecasts, we'd be feeling a little more wary of Seres Therapeutics going forwards.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Seres Therapeutics analysts - 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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