Today is shaping up negative for Zai Lab Limited (NASDAQ:ZLAB) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the downgrade, the current consensus from Zai Lab's twelve analysts is for revenues of US$136m in 2021 which - if met - would reflect a major 177% increase on its sales over the past 12 months. The loss per share is expected to ameliorate slightly, reducing to US$3.19. Yet before this consensus update, the analysts had been forecasting revenues of US$225m and losses of US$2.73 per share in 2021. 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.
Analysts lifted their price target 11% to US$190, implicitly signalling that lower earnings per share are not expected to have a longer-term impact on the stock's value. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Zai Lab at US$262 per share, while the most bearish prices it at US$105. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Zai Lab's past performance and to peers in the same industry. We would highlight that Zai Lab's revenue growth is expected to slow, with the forecast 177% annualised growth rate until the end of 2021 being well below the historical 275% growth over the last year. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 18% annually. So it's pretty clear that, while Zai Lab's revenue growth is expected to slow, it's still expected to grow faster than the industry itself.
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, although our data indicates revenues are expected to perform better than the wider market. The rising price target is a puzzle, but still - with a serious cut to this year's outlook, we wouldn't be surprised if investors were a bit wary of Zai Lab.
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 Zai Lab analysts - going out to 2025, 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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