Shareholders in Neos Therapeutics, Inc. (NASDAQ:NEOS) had a terrible week, as shares crashed 49% to US$0.70 in the week since its latest full-year results. Revenues of US$65m came in 3.1% below estimates, but statutory losses were well contained with a per-share loss of US$0.34 being some 12% smaller than what analysts were predicting. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. So we gathered the latest post-earnings forecasts to see what analysts’ statutory forecasts suggest is in store for next year.
Taking into account the latest results, the latest consensus from Neos Therapeutics’s four analysts is for revenues of US$73.4m in 2020, which would reflect a decent 13% improvement in sales compared to the last 12 months. Statutory losses are forecast to balloon 58% to US$0.14 per share. Before this earnings announcement, analysts had been forecasting revenues of US$83.2m and losses of US$0.11 per share in 2020. It looks like analyst sentiment has declined substantially in the aftermath of these results, with a substantial drop in revenue estimates and a large cut to consensus earnings per share numbers as well.
The average analyst price target fell 9.7% to US$7.00, implicitly signalling that lower earnings per share are a leading indicator for Neos Therapeutics’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 Neos Therapeutics at US$10.00 per share, while the most bearish prices it at US$2.00. So we wouldn’t be assigning too much credibility to analyst price targets in this case, because there are clearly some widely different views on what kind of performance this business can generate. With this in mind, we wouldn’t assign too much meaning to the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
It can be useful to take a broader overview by seeing how analyst forecasts compare, both to the Neos Therapeutics’s past performance and to peers in the same market. We would highlight that Neos Therapeutics’s revenue growth is expected to slow, with forecast 13% increase next year well below the historical 57%p.a. growth over the last five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 5.0% next year. So it’s pretty clear that, while Neos Therapeutics’s revenue growth is expected to slow, it’s still expected to grow faster than the market itself.
The Bottom Line
The highlight for us was that the consensus reduced its estimated losses next year, perhaps suggesting Neos Therapeutics is moving incrementally towards profitability. Regrettably, they also downgraded their revenue estimates, but the latest forecasts still imply the business will grow faster than the wider market. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. We have estimates – from multiple Neos Therapeutics analysts – going out to 2024, and you can see them free on our platform here.
You can also see whether Neos Therapeutics is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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