Some Analysts Just Cut Their Wave Life Sciences Ltd. (NASDAQ:WVE) Estimates

Market forces rained on the parade of Wave Life Sciences Ltd. (NASDAQ:WVE) shareholders today, when the analysts downgraded their forecasts for next year. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.

Following the downgrade, the consensus from six analysts covering Wave Life Sciences is for revenues of US$9.2m in 2023, implying a sizeable 77% decline in sales compared to the last 12 months. Per-share losses are expected to explode, reaching US$1.81 per share. However, before this estimates update, the consensus had been expecting revenues of US$15m and US$1.67 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.

See our latest analysis for Wave Life Sciences

The consensus price target fell 5.2% to US$7.86, implicitly signalling that lower earnings per share are a leading indicator for Wave Life Sciences' 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. There are some variant perceptions on Wave Life Sciences, with the most bullish analyst valuing it at US$17.00 and the most bearish at US$2.00 per share. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. 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 sales are expected to reverse, with a forecast 69% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 39% 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 4.0% annually for the foreseeable future. It's pretty clear that Wave Life Sciences' revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at Wave Life Sciences. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales 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. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Wave Life Sciences after today.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Wave Life Sciences 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.

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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.