One thing we could say about the analysts on MEI Pharma, Inc. (NASDAQ:MEIP) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. At US$3.03, shares are up 9.2% in the past 7 days. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
Following the downgrade, the latest consensus from MEI Pharma's seven analysts is for revenues of US$38m in 2022, which would reflect a solid 8.5% improvement in sales compared to the last 12 months. Per-share losses are expected to explode, reaching US$0.68 per share. However, before this estimates update, the consensus had been expecting revenues of US$55m and US$0.55 per share in losses. 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 expecting losses per share to increase.
The consensus price target was broadly unchanged at US$10.89, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. 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. The most optimistic MEI Pharma analyst has a price target of US$20.00 per share, while the most pessimistic values it at US$7.00. 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. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that MEI Pharma's revenue growth is expected to slow, with the forecast 12% annualised growth rate until the end of 2022 being well below the historical 29% p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 15% per year. Factoring in the forecast slowdown in growth, it seems obvious that MEI Pharma is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on MEI Pharma after the downgrade.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for MEI Pharma 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.
What are the risks and opportunities for MEI Pharma?
Trading at 96.9% below our estimate of its fair value
Revenue is forecast to grow 45.7% per year
Does not have a meaningful market cap ($41M)
Volatile share price over the past 3 months
Currently unprofitable and not forecast to become profitable over the next 3 years
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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.