Need To Know: The Consensus Just Cut Its MEI Pharma, Inc. (NASDAQ:MEIP) Estimates For 2022

The analysts covering MEI Pharma, Inc. (NASDAQ:MEIP) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.

Following the downgrade, the consensus from nine analysts covering MEI Pharma is for revenues of US$33m in 2022, implying a painful 24% decline in sales compared to the last 12 months. Losses are supposed to balloon 34% to US$0.55 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$38m and losses of US$0.53 per share in 2022. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.

View our latest analysis for MEI Pharma

The consensus price target fell 31% to US$6.80, implicitly signalling that lower earnings per share are a leading indicator for MEI Pharma's valuation. 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 MEI Pharma, with the most bullish analyst valuing it at US$20.00 and the most bearish at US$4.00 per share. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. 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.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the MEI Pharma's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 43% by the end of 2022. This indicates a significant reduction from annual growth of 29% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 11% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - MEI Pharma is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that MEI Pharma's revenues are expected to grow slower than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of MEI Pharma 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 MEI Pharma 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.