Stock Analysis

Newsflash: MEI Pharma, Inc. (NASDAQ:MEIP) Analysts Have Been Trimming Their Revenue Forecasts

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Market forces rained on the parade of MEI Pharma, Inc. (NASDAQ:MEIP) shareholders today, when the analysts downgraded their 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. The stock price has risen 7.8% to US$1.94 over the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

After the downgrade, the consensus from MEI Pharma's nine analysts is for revenues of US$27m in 2022, which would reflect a disturbing 22% decline in sales compared to the last year of performance. Losses are supposed to balloon 47% to US$0.67 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$33m and losses of US$0.67 per share in 2022. 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 making no real change to the loss per share numbers.

Check out our latest analysis for MEI Pharma

NasdaqCM:MEIP Earnings and Revenue Growth February 12th 2022

There was no real change to the consensus price target of US$10.10, suggesting that the revisions to revenue estimates are not expected to have a long-term impact on MEI Pharma's valuation. 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. Currently, the most bullish analyst values MEI Pharma at US$20.00 per share, while the most bearish prices it at US$4.00. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. 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.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 39% by the end of 2022. This indicates a significant reduction from annual growth of 29% 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 13% annually for the foreseeable future. It's pretty clear that MEI Pharma's revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

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. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of MEI Pharma going forwards.

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 MEI Pharma analysts - going out to 2024, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

Valuation is complex, but we're helping make it simple.

Find out whether MEI Pharma is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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