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Market forces rained on the parade of AtriCure, Inc. (NASDAQ:ATRC) 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.
Following the latest downgrade, AtriCure's seven analysts currently expect revenues in 2020 to be US$229m, approximately in line with the last 12 months. Losses are supposed to balloon 55% to US$1.45 per share. Yet before this consensus update, the analysts had been forecasting revenues of US$259m and losses of US$1.41 per share in 2020. 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.
The consensus price target fell 6.1% to US$46.43, implicitly signalling that lower earnings per share are a leading indicator for AtriCure's valuation. 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 AtriCure at US$50.00 per share, while the most bearish prices it at US$41.00. Even so, with a relatively close grouping of analyst estimates, it looks to us as though the analysts are quite confident in their valuations, suggesting that AtriCure is an easy business to forecast or that the underlying assumptions are knowable.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 1.0% revenue decline a notable change from historical growth of 15% 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 7.4% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - AtriCure is expected to lag the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at AtriCure. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that AtriCure's revenues are expected to grow slower than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of AtriCure's future valuation. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of AtriCure 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 AtriCure analysts - going out to 2022, 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.
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