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The analysts covering Vir Biotechnology, Inc. (NASDAQ:VIR) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next 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 5.8% to US$26.98 over the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.
Following the downgrade, the most recent consensus for Vir Biotechnology from its seven analysts is for revenues of US$114m in 2021 which, if met, would be a substantial 50% increase on its sales over the past 12 months. Per-share losses are expected to explode, reaching US$2.90 per share. Yet before this consensus update, the analysts had been forecasting revenues of US$142m and losses of US$2.74 per share in 2021. 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.
There was no major change to the consensus price target of US$54.86, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. 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. The most optimistic Vir Biotechnology analyst has a price target of US$100.00 per share, while the most pessimistic values it at US$24.00. 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.
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 Vir Biotechnology's revenue growth is expected to slow, with forecast 50% increase next year well below the historical 98% p.a. growth over the last three years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 21% next year. Even after the forecast slowdown in growth, it seems obvious that Vir Biotechnology is also expected to grow faster 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 Vir Biotechnology. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. Given the stark change in sentiment, we'd understand if investors became more cautious on Vir Biotechnology after today.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Vir Biotechnology analysts - going out to 2024, 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.
This article by Simply Wall St is general in nature. 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.
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